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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.

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.

Japanese Risk Retention: The LSTA Weighs In

Early this week, the LSTA submitted a comment letter to the Japanese Financial Services Agency (“JFSA”) responding to its recent proposal to impose significantly higher capital charges on Japanese investors who purchase interests in certain securitizations that are not risk retention compliant. (For the Japanese language version of the comment letter click here and for the English language version click here).

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LSTA Newsletter: August 16, 2019

This week we cover LIBOR-Good News and Less Good News; Docs Terms of Use; Delayed Comp Docs Released; Loans Mag Announcement

Loans Magazine – Summer 2019 Edition

This edition provides members with valuable content on the latest developments in the syndicated loan market. An article from David Chmiel of Global Torchlight Limited which explores “Current Geopolitical Trends Impacting the Loan Market”. We continue with a series of articles on the many aspects of the LIBOR/SOFR transition, an analysis of the secondary loan […]

LIBOR Fallbacks: Good News… and Less Good News

There is good news – and less good news – on LIBOR fallback language in cash products like loans, FRNs and CLOs. On the good news front, it looks like most cash products are now including fallback language in new deals. This is critical because many instruments will be outstanding when LIBOR ends after 2021, and if they don’t have good fallback language, there could be contract frustration (and litigation). However, on the less-good-news front, the fallback language is not always consistent (which may lead to a lot of work to determine exactly how each instrument would fall back) or workable en masse (which may lead to traffic jams as everyone tries to amend their deals at the same time). We discuss the fallback status of FRNs and loans below. (And we’d gently remind readers that several CLOs have gone “hardwired”, per LCD and Covenant Review).

Primary Delayed Compensation: Drafts Released

Yesterday, the LSTA released drafts of the LSTA trading documents to be used in connection with the new Primary Delayed Compensation Protocol. Below, please find links to the clean drafts and blacklines marking the changes to the current versions of the Par/Near Par Trade Confirmation and Standard Terms and Conditions for Par/Near Par Trades.

Primary Delayed Compensation Protocol

The Protocol applies to a “Primary Allocation” which is an allocation of new money by a syndicate desk in connection with either (i) a new issue syndication or (ii) an amendment of an existing Credit Agreement. In addition, the Protocol affects when-issued secondary trades by (i) changing what constitutes an Early Day Trade and (ii) […]

FAQs: The LSTA Trading Documents’ New Terms of Use

As we previously noted, on May 17, 2019, the LSTA published a new suite of U.S. secondary market trading documents. In conjunction with the rollout of the new documents the LSTA changed the Terms of Use applicable to counterparties who use those documents. Since then, we’ve received many questions about the new Terms of Use and below we answer many of those questions.