Risk retention rules set, ‘win for larger managers’; Ballyrock plans $409.4 million CLO

By Cristal Cody

Tupelo, Miss., Oct. 21 – The Federal Deposit Insurance Corp. on Tuesday released final risk retention rules that require CLO managers to retain 5% capital of new CLO deals beginning in October 2016.

Existing CLOs, and those issued before Oct. 21, 2016, would be grandfathered under the securitization risk retention requirement required under the Dodd-Frank Act.

“Under the rule, there are two avenues to comply with risk retention: the CLO manager can retain 5% of the deal balance, via a vertical or horizontal slice, or the loan arranger can retain 5%, unhedged, of the loan tranche purchased by CLOs for the life of the loan,” Wells Fargo Securities, LLC senior analyst Dave Preston and associate analyst Jason McNeilis said in a note on Tuesday.

“Under this rule, we believe that CLO issuance will continue but at a reduced rate, as managers may adapt to use a variation of the European originator option structure,” the analysts said. “We see this as a win for larger managers, with potential damaging effects on small managers, and note investors, if CLOs are structured to comply with both European and U.S. rules.”

Coming up in new issuance, Boston-based Ballyrock Investment Advisors LLC plans to price $409.4 million of notes due November 2026 in the Ballyrock CLO 2014-1 Ltd./Ballyrock CLO 2014-1 LLC deal, according to a market source.

Citigroup Global Markets Inc. is the placement agent.

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