LSTA Files Legal Claims on Risk Retention

The LSTA has filed a lawsuit against the Fed and the SEC seeking relief for CLOs from the Final Risk Retention Rule.  The LSTA writes:

Since 2010, the LSTA and industry have tried to work with regulators to find a workable and practical solution for risk retention and the CLO market. Unfortunately, after four years, more than a dozen letters, studies and presentations, three hearings on Capitol Hill, and countless meetings with rulemakers and lawmakers, the Final Risk Retention Rule continues to require CLO managers to purchase and retain 5% of the amount of CLOs.

We believe this rule disproportionately punishes CLOs, an industry that was not involved in the financial crisis, suffered virtually no losses and currently provides critical financing to over 1,000 non-investment grade companies.

The LSTA and industry strongly believe that the agencies did not fulfill their legal responsibilities when finalizing the rule. Thus, reluctantly, and as a last resort, the LSTA has filed suit against the Fed and SEC seeking relief for CLOs from the Final Risk Retention Rule and protecting an important source of financing for American companies.