US Risk Retention Final Rule: Capitalized Manager Vehicles, Majority Owned Affiliates and Other FAQs

January 26, 2015

Since its initial release we have received numerous inquiries from market participants (clients and non-clients alike) concerning the meaning and ramifications of the final U.S. risk retention rule (the “Final Rule”) on collateralized loan obligation transactions (“CLOs”). Our first Dechert OnPoint on the subject1 laid out some very early stage proposals for consideration by market participants. In this follow-up, we address some frequently-asked questions regarding compliance with the Final Rule:

  • What structuring options are available for asset managers currently managing CLOs who wish to or need to set up a new entity (or restructure an existing entity) to manage their future CLOs and raise the capital necessary to hold risk retention?
  • If a CLO which closed prior to the effective date of the Final Rule engages in a refinancing or issues new securities, does this trigger a risk retention requirement?
  • What about re-pricings?
  • Aside from Re-Pricing, what other types of amendments to a grandfathered CLO could cause it to lose its grandfathered status?
  • To what extent would a CLO structured with one or more tranches documented as “loans” rather than “securities” fall under the risk retention requirements?
  • To what extent would a loan to an SPV which is a wholly-owned subsidiary of a parent company fall under the risk retention requirements?
  • How does the ability to hold risk retention through a MOA reconcile with the anti-hedging provisions of the Final Rule?

Read U.S. Risk Retention Final Rule: Capitalized Manager Vehicles, Majority Owned Affiliates and Other FAQs