NEW YORK, Feb 9 (Reuters) - A US court ruled on Friday that Collateralised Loan Obligation (CLO) funds should be exempt from the Dodd-Frank financial reform legislation requirement that managers hold some of their fund.
The ruling will allow CLOs to save money as they will no longer have to buy some of their fund in order to meet regulators’ ‘skin in the game’ requirements.
The US Court of Appeals for the District of Columbia Circuit ruled in favor of the the Loan Syndications and Trading Association (LSTA). The loan trade association brought the case on behalf of CLO funds, which are the largest buyers of leveraged loans.
The LSTA sued the Federal Reserve and the Securities and Exchange Commission in 2014, arguing that the US$501bn US CLO market should not be subject to risk-retention rules that force firms to hold 5% of their fund.
“The LSTA is delighted with this result, which vindicates our analysis of the clear statutory language and reflects the reality that CLOs have performed very well for more than 20 years, including through the financial crisis,” Elliot Ganz, LSTA’s general counsel, said in a release. “We believe that this ruling will allow that market to continue to prosper.” (Reporting by Kristen Haunss; Editing by Tessa Walsh and Michelle Sierra)