lsta-volcker-comment-letter-oct-2018-preview

The LSTA submitted a comment letter on proposed changes to the Volcker Rule. Importantly for the loan and CLO markets, the proposal puts into play the issue of whether banks can own the debt securities of CLOs that hold bonds.  The LSTA’s comment letter focuses on two points.  First, it suggests that the final rule’s “loan securitization” exclusion be modified to include even traditional CLOs that have modest baskets for bonds or assets other than loans.  Including traditional CLOs in the definition of loan securitizations would be consistent with the congressional intent as reflected in the Volcker Rule’s “rule of construction” regarding loan securitizations since CLOs that existed at the time of the passage of Dodd-Frank did include bond baskets.  Second, it argues that the final rule’s definition of “ownership interest” that provides that the “rights of a creditor to exercise remedies upon the occurrence of an event of default…” include the right to participate in the removal of an investment manager “for cause” or participate in the replacement of a manger in such circumstances.

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