January 23, 2024 - The past year was a very busy one for the LSTA on several fronts. Advocacy on Capitol Hill, supported by the LSTA PAC, was robust.  The LSTA vigorously engaged with the SEC and the banking agencies in connection with the Kirschner litigation that is considering whether Term Loan Bs are securities. And the LSTA joined several other trade associations in a lawsuit against the SEC contending that it does not have the statutory authority to issue its Private Fund Advisers Rule and that it violated the Administrative Procedure Act in promulgating that rule.

Capitol Hill Advocacy

The LSTA, through its grassroots advocacy affiliate, the Business Loans Coalition (BLC), had a very active year on Capitol Hill. We met in person with over 30 members of Congress and with dozens of Congressional staffers, explaining the issues confronting the institutional leveraged loan market, and particularly the overreach of the SEC under Chair Gensler.  We worked together with several other trade associations on comment letters submitted to the SEC on several proposed rulemakings and to help members of Congress prepare for hearings involving SEC leaders.  As an integral part of building important relationships, the LSTA’s political action committee, the LSTA PAC, supported 30 congressional and Senate candidates, on a bipartisan basis, with contributions in excess of $62,000.  (Member support of the BLC is very important. Joining the BLC is free and can be done here.)

Regulatory Advocacy and Litigation

The LSTA’s regulatory advocacy focus this year was primarily on the actions of the SEC.  In addition to engaging with the SEC on its extensive rule proposals, the LSTA was involved as principal and amicus in two critical lawsuits that involved the SEC either directly or tangentially: the Kirschner litigation, which will determine whether term loans are subject to the securities laws, and a lawsuit against the SEC in connection with its promulgation of the Private Fund Advisers Rule.

The LSTA in May 2022 submitted an amicus brief to the Second Circuit Court of Appeals in the Kirschner case supporting the proposition that term loan Bs are not securities.  When the Second Circuit unexpectedly asked the SEC to weigh in with their views on whether loans are securities, the LSTA engaged with Chair Gensler’s staff as well as with all the SEC Commissioners and their staff. the LSTA also had productive meetings with officials of the Department of the Treasury, the Federal Reserve Board and the OCC. Ultimately, the SEC chose not to submit a brief and the Second Circuit shortly thereafter unanimously affirmed the District Court’s ruling that the loans were, indeed, not securities. Last month, however, Kirschner filed a petition with the U.S. Supreme Court for certiorari. The petition is pending.

In early September 2023 the LSTA joined five other trade associations in commencing litigation against the SEC in the Fifth  Circuit Court of Appeals in connection with the agency’s final Private Fund Advisers Rule. In the complaint, the trade associations contend that the SEC did not have the statutory authority to impose the rule and acted in an arbitrary and capricious manner by not complying with the Administrative Procedure Act.  The Fifth Circuit has agreed to review this case on an expedited basis and has scheduled oral argument for February 5th.  A decision should be forthcoming from the court shortly thereafter.

Looking Ahead

We expect another busy year for LSTA Advocacy in 2024.  The LSTA’s advocacy group continues to work closely with the LSTA’s policy team and is well-placed to address issues that may arise in the coming year.

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