LSTA Panel: Legislation, regulation could impact loan market

By Andrea Heisinger

New York, Nov. 2 - Legislation, including the Volcker Rule and Dodd-Frank Act, could have some impact on the loan market, panelists said at the Loan Syndications and Trading Association conference on Wednesday in New York.

With Dodd-Frank, Congress changed the status of loan swaps, making them securities, Yoon-Young Lee, a partner at WilmerHale and panelist, said.

"The implications are significant," she said. "It changes the way loan derivatives are trading and impacts cash loan trading."

Another panelist, Manish Mital, general counsel and managing principal at Halcyon Asset Management LLC, said that anti-fraud provisions of securities laws now apply to loan credit default swaps and other loan instruments.

Lee later said that the "broad definition of swaps and security-based swaps may capture loan participations.

"Hopefully it will be clear that loan participations are not swaps," she added.

The Volcker Rule could prove challenging to collateralized loan obligations, said LSTA executive vice president Meredith Coffey.

CLOs are still a big part of the institutional loan market, she said, adding that included in the worst case scenario is that they can't be issued, or that European countries all sell and their CLOs and create a market glut.

The CLOs are not covered by the Dodd-Frank Act, although Coffey said they ultimately want CLOs covered by risk-retention requirements.

The latest challenge is a conflict of interest in securitization, although open market CLOs are not the target of any regulation, Coffey said.

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