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LSTA seeks CLO consideration in conjunction with TruPS-backed CDOs
By Jennifer Chiou
New York, Jan. 2 - The Loan Syndications and Trading Association announced that it has submitted a letter to federal regulatory agencies asking them to confirm that CLO debt securities that have the right to replace a manager for cause should not be considered "ownership interests" under the Volcker Rule.
As reported, the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Securities and Exchange Commission are reviewing whether it would be appropriate and consistent with the Dodd-Frank Act to forgo subjecting collateralized debt obligations backed by trust preferred securities to the investment prohibitions under the Volcker Rule, which is under section 619 of Dodd-Frank.
The LSTA is seeking CLO consideration along with the CDOs backed by TruPS.
"The issues facing holders of CDO TruPS are nearly identical to those faced by holders of CLO notes," LSTA executive director Bram Smith said in a press release.
"Neither asset class should be considered as having ownership interest."
According to the release, the LSTA, the Securities Industry and Financial Markets Association, the Structured Finance Industry Group and the Financial Services Roundtable sent the follow-up letter to review CLOs because they have many of the same characteristics as the CDOs of trust preferreds.
The agencies intend to address the matter no later than Jan. 15.
The LSTA stated that because banks would not be permitted to "own" CLOs, they could be forced to quickly sell their CLO note holdings, which could lead to a disruption of both the CLO and loan markets.
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