June 15, 2023 - Earlier this week the SEC asked the US Circuit Court for the 2nd Circuit  for a second extension to submit its brief in the Kirschner case on whether they think Term Loan Bs are securities.  The following day, the Court granted the motion.  As a result, the new deadline for the SEC’s submission is July 11th and the date for the banks to respond was extended to August 24th.  While we strongly believe that the “Reves Test” that determines whether an instrument is a security absolutely supports the LSTA’s position that loans are not securities, it nonetheless is prudent to be prepared in case the 2nd Circuit does not affirm that loans are not securities.

Background.  As we noted previously, this case may determine whether Term Loan Bs are subject to the securities laws and the Court asked the SEC to weigh in with its views.  While the original deadline set by the Court was April 11, the SEC asked for more time, until June 27th and the Court granted that request.  This week, the SEC explained that since its previous extension request its staff have reviewed the record, studied the legal issues, consulted with the Office of the Solicitor General and other interested federal agencies, met with counsel for the parties in the case, and coordinated with Commission staff members to determine the appropriate response to the Court’s question. They noted that “[d]espite working diligently and making significant progress, Commission staff does not anticipate being able to conclude those ongoing consultations and finalize its recommendations with adequate time for the necessary Commission review and approval prior to the current June 27 deadline. And Commission staff may not file an amicus brief without approval by a majority of Commissioners.”

What does this mean?  The SEC’s second extension confirms that they are actively engaged and taking their response very seriously.  It also confirms that whatever action the SEC takes in this matter will be subject to a vote of the Commissioners.  It is clear, too, that the SEC has been consulting with the banking agencies and others.

What is the LSTA doing?  The LSTA has been meeting with members of the SEC leadership and senior officials of the banking agencies and the Treasury Department in an effort to persuade the SEC to affirm that Term Loan Bs are not securities.  We will continue to follow this matter closely and report as appropriate.

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