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Moody's: Ruling on CLO risk retention is credit positive for asset managers


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Moody's: Ruling on CLO risk retention is credit positive for asset managers

Moody's said a recent federal appeals court ruling related to collateralized loan obligation securities is credit positive for asset managers such as Invesco Ltd. and Neuberger Berman Group LLC.

The industry group Loan Syndications & Trading Association challenged a Dodd-Frank Act provision that required managers to hold at least a 5% capital stake in open market collateralized loan obligation securities, or CLOs, they sponsor. The "skin in the game" rule for securitizers is intended to discourage dangerous speculations like those that preceded the financial crisis.

The Court of Appeals for the D.C. Circuit sided with the trading association, which successfully argued that CLO managers should not be considered securitizers because they do not originate the loans or hold them as assets.

"[Asset managers] will have greater flexibility to manage their equity commitment to the CLOs they sponsor, potentially freeing up capital or allowing smaller, capital-constrained managers to participate in this market," the rating agency said.

Moody's expects the removal of the capital requirements to increase participation in CLOs, which would push up assets under management and related fees.