Keywords: no action relief, credit risk retention, CLO, refinancing

In response to a request by Crescent Capital Group, the US Securities and Exchange Commission has issued conditional no action relief from otherwise applicable credit risk retention requirements under the related Credit Risk Retention final rule thatwould apply to certain legacy collateralized loan obligation (CLO) transactions (that priced before the publication of the final rule) for certain refinancings that occur after the effective date of the final rule.

Conditions for a permissible CLO refinancing (Refinancing) under the no-action relief include:

  • The Refinancing will be completed (i.e., by the issuance of the relevant Refinanced Notes) within four years after the original closing date of the CLO transaction;
  • The interest rate applicable to the Refinanced Notes will be lower than the interest rate of the original Notes;
  • Other than the reduction of the interest rate of the original Notes, after giving effect to a Refinancing:

    • the voting and other consent rights of the Refinanced Notes and the original Notes will be the same; and
    • the stated maturity of the Refinanced Notes and the original Notes will be the same;
  • The CLO entity's investment criteria will not change as a result of the Refinancing;
  • No securitization of additional assets will be affected by a Refinancing (i.e., proceeds from the issuance of the Refinanced Notes will be used only for the redemption of the original Notes), it being understood that the Collateral Manager will continue to actively manage the Collateral Obligations on the CLO Entity's behalf;
  • No additional subordinated interests will be issued in connection with a Refinancing;
  • Refinancing will not cause the identity of the holders of subordinated interests to change;
  • Refinancing of different classes of Secured Notes may occur on different dates; however, each class of Secured Notes will be subject to only one Refinancing, and the supplemental indenture executed in connection with a Refinancing of each class will prohibit any further refinancing of the Refinanced Notes;
  • The offering document for the Replacement Notes will, among other things:

    • include a prominent statement (e.g., on the cover of the offering document) that the sponsor is not retaining a risk retention interest contemplated by the final rule in connection with a Refinancing or the Refinanced Notes;
    • describe the interest rates of the Refinanced Notes and confirm that all other legal and economic terms of the Refinanced Notes will be the same as the original Notes; and
    • include a statement in a section entitled "Credit Risk Retention" to the effect that reliance on the no-action letter contemplated hereby does not preclude the availability of any applicable private rights of actions for any violation of the federal securities laws.

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Originally published 17 July 2015

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