LSTA and Risk Retention: Efforts on the Hill and in the Courts

Abstract

The U.S. Risk Retention Rule was published on December 24, 2016, leaving the industry two years to prepare for its implementation for open-market collateralized loan obligations (CLOs). Unfortunately, risk retention simply does not work for open-market CLOs. Notwithstanding the poor fit, market practitioners have spent the past 18 months trying to figure out a way to make CLOs fit the risk retention rules. In contrast, the Loan Syndications & Trading Association has spent the last 18 months attempting to find a way to make risk retention better fit CLOs. This article recaps the efforts, both on Capitol Hill and in the Courts, to create a better fit.