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LSTA Meets with Treasury

May 30, 2017 - On Friday, May 26, 2017, LSTA EVP Meredith Coffey and general counsel Elliot Ganz met with Craig Phillips, Counselor to Secretary of the Treasury Steven Mnuchin to discuss a number of regulatory issues impacting the loan market.  The meeting was connected to an Executive Order on Core Principles for Regulating the United States Financial System (the “EO”) issued by president Trump early in February that enumerates “core principles” by which the administration will be guided in regulating the U.S. financial system.  Most relevant to the loan market is a provision to “make regulation efficient, effective, and appropriately tailored.”  The EO also directs the Secretary of the Treasury to “identify any laws…regulations, guidance…and other Government policies that inhibit Federal regulation in the United States Financial system in a manner consistent with the Core Principles.”  The meeting focused on three issues:  Risk retention for CLO managers; the interpretation of the Volcker Rule as preventing banks from investing in any debt securities of CLOs that own any bonds; and the impact of the leveraged lending guidance on the ability of banks to extend credit to American companies.  As we noted in April, the LSTA submitted a letter to Secretary Mnuchin in response to the EO noting that the risk retention rules were inconsistent with the Core Principles and suggesting their modification or elimination.  At the meeting with Counselor Phillips, the LSTA submitted a second letter, this time focusing on the regulatory overreach represented by the banking agencies’ view that AAA and AA CLO notes are “ownership interests”, similar to equity, and thus prohibited to banks unless the CLO is comprised entirely of loans and short term interests.  The conversation with Counselor Phillips was productive and we expect to continue our dialogue with him and the Treasury Department on these and other important issues impacting the loan market.

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