Milbank Structured Finance partner Deborah Festa comments on what relief from Volcker Rule would mean for CLOs in an article published by Asset Securitization Report.
In the article, Ms. Festa noted: “[t]he impact of Volcker Rule was felt most by investors in the most subordinate tranches of notes issued by CLOs, known as the equity. Holders of these securities are entitled to whatever funds are left over after interest and principal is paid on more senior securities. Many of the large banks that hold the triple-A positions in a lot of these deals went back and pressured managers to amend their transactions to become compliant with the loan securitization exemption...which of course meant complicated negotiations with some investors to try to get them to consent to the amendments, do a supplemental indenture, work with the ratings agencies.”
“The real question is whether investors would be comfortable with CLOs that hold bonds,” added Ms. Festa. “The general counsels of the major banks would likely want to see more formal action by the regulators or Congress before they get comfortable.”
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