March 3, 2016 - March 3, 2016 – On Wednesday, March 2, 2016, HR 4166 (the QCLO bill), which was sponsored by Representative Andy Barr (KY) and Representative Dave Scott (GA), was passed by the House Financial Services Committee 42-15. Notably, 10 Democrats joined the bill.
The Qualified CLO (QCLO) bill applies restrictions to CLOs in six areas: i) Asset Quality, ii) Portfolio Diversification, iii) CLO Capital Structure (equity must be at least 8%), iv) Alignment of Interests of the Manager and Investor, v) Manager Regulation and vi) Enhanced Transparency and Disclosure. If a CLO meets all these criteria, then the manager can purchase and retain CLO liabilities equivalent to 5% of the equity. If the CLO does not meet these restrictions, the manager could still purchase and retain 5% of the full amount of the CLO. Next, the bill will go to the Full House for a vote. Assuming it passes, it then goes to the Senate.
The QCLO was developed by the LSTA and other trade associations – working with their members – and is meant to set restrictions in six areas and also ensure that the CLO meet the risk retention rules as set forth by Dodd-Frank. If you have any questions on the QCLO bill or the process, please reach out to mcoffey@lsta.org or eganz@lsta.org.
