February 4, 2016 - On November 4, 2015, Federal Reserve Chairwoman Janet Yellen testified before the House Financial Services Committee and, when asked, agreed to look into whether the Federal Reserve would support the concept of a “Qualified CLO”. (A Qualified CLO is subject to tests in six categories and, assuming the CLO meets all the tests, the manager can purchase and retain 5% of the CLO equity, rather than 5% of the value of all the notes.) 

On January 28, 2016, Chairwoman Yellen responded to the Committee, noting that such CLOs have characteristics designed to strengthen the quality of assets selected by managers and better align the interests of CLO managers with investors. She noted that an increase in such CLOs that reflect strengthened underwriting and compensation standards, among other features, could be considered a positive development in the market. However, the Board does not have any current plans to promulgate regulations regarding the Qualified CLO concept.

For the full response from Chairwoman Yellen, please click here.  For a full description of the Qualified CLO, please click here.

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