June 7, 2017 - On June 7th, the Board of Governors of the Federal Reserve and the SEC filed a responsive brief in the LSTA’s ongoing lawsuit relating to risk retention for CLO Managers.  The LSTA has alleged that the agencies overstepped their authority when they determined, contrary to the statutory language, that CLO managers were “securitizers,” subject to the risk retention requirements under Section 941 of Dodd-Frank and erred by tying the required amount of first-loss horizontal risk retention to 5% of the fair value of a CLO rather than something closer to its credit risk as mandated by the statute.  The LSTA seeks the reversal of a December 2016 decision by the DC District Court granting summary judgment to the federal agencies and requests that the court vacate the risk retention rules as applied to CLO managers.  The LSTA’s opening brief is available here and the agencies’ brief is available here.  The LSTA’s reply brief is due July 12th after which oral argument will be scheduled (probably for the fall) and a final decision rendered sometime in early 2018.  For more on the litigation, see this article from our April 28th newsletter.

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