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LSTA Newsletter: March 29, 2019

This week we cover Japanese Risk Retention; CLO Check In; Getting Your (Delayed) Comp & SONIA’s Conventional Thinking

JRR: Not All About Risk Retention

They say, “If you’re a hammer, everything looks like a nail.”  And maybe if you are a CLO manager, “every regulation must be about risk retention.”  That seems to be the case with respect to the Japan Financial Services Agency’s (“JFSA”) recently published regulatory capital rule (the “Rule”) on securitizations.  To be sure, an important part of it touches on risk retention but a deeper dive suggests that the JFSA’s focus extends to the due diligence practices of Japanese banks and the asset quality of the loans in which they are investing through CLOs.  Furthermore, the JFSA has structured the Rule in such a way as to give themselves a significant amount of leeway in interpreting and enforcing the Rule.  Stated differently, it appears that the uncertainty in the Rule is a feature, not a bug. Let’s take a look.

CLO Check In

The 2019 topline CLO numbers look surprisingly robust. New CLO issuance has topped $25 billion, off around 15% from 2018 figures, while there’s just been one fewer deal than last year, Wells notes. But beneath these unremarkable numbers lies considerable drama.

Japanese Risk Retention for CLOs?

Will there be Japanese Risk Retention for CLOs? Last Friday, the Japanese Financial Services Agency (JFSA) published its long awaited final rule (the Final Rule) on risk retention/capital costs for investments by Japanese investors in securitizations (including CLOs).

Japanese Risk Retention/Capital Rules Published

Late last night (US Eastern time) the Japanese Financial Services Agency (JFSA) published its final rule and related FAQs on capital charges relating to investments in securitizations.

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