April 2, 2020 - The LSTA this week filed a comment letter in connection with the recent re-proposal of the rules implementing the Volcker Rule.  As we noted in January, the re-proposal was very favorable for the syndicated loan and CLO markets, recommending that senior AAA CLO debt liabilities that have certain enumerated characteristics should no longer be considered equity-like “ownership interests” under Volcker, and, second, that the “loan securitization” carve-out from the definition of “covered funds” (which otherwise includes securitizations) should permit the holding of a small bucket of non-loan assets.  Thus, the LSTA’s comment letter generally and enthusiastically supports the re-proposal while proposing some modest improvements. The LSTA expressed its appreciation that the agencies recognized that the definition of “covered fund” in the 2013 Final Rule is very expansive and that additional refinements and clarifications are necessary to comport more closely with the Volcker Rule, including the statutory rule of construction. Specifically, the LSTA endorsed the Agencies’ proposals (1) to permit loan securitizations to hold a small amount of non-loan assets and (2) to create a safe harbor from the definition of ownership interest for senior loans and senior debt interests.  The LSTA, recognizing that the agencies proposal to permit loan securitizations to hold up to five percent of assets in non-loan assets was an important step, requested that the Agencies consider modifying this amendment to permit loan securitizations to hold up to ten percent of assets in non-loan assets to allow for greater flexibility. The LSTA asserted that the agencies’ proposal to clarify the types of creditors’ rights that would not constitute ownership interests did not go far enough and urged the agencies to further clarify that such creditors’ rights include the ability to participate in the removal or replacement of a manager regardless of whether an event of default or acceleration has occurred.  The original deadline for accepting comments was April 1st but the agencies postponed that date until May 1st.  The agencies will then issue a final rule but given the disruption caused by the COVID-19 virus, it is unclear when the agencies will be in a position to do so.  Please direct any questions on the Volcker Rule to LSTA General Counsel Elliot Ganz.

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