Occupied by Wall Street Part 2 – Creating CLOs to Bypass Regulations

Leon Black’s Apollo Global Management LLC, Carlyle Group LP and a unit of Credit Suisse Group AG have all taken steps in the past two months to create CLOs now that they may be able to refinance after the rules take effect in December 2016 without having to comply with the new regulations, according to three people with knowledge of the matter. The firms are trying to avoid a requirement to hold a stake in the funds they manage.

– From the Bloomberg article: Wall Street Creating CLOs That May Bypass Rules: Credit Markets

As the U.S. inches closer to a cyclical downturn within the secular theft up-cycle known as the oligarch recovery, the craftiest of financial oligarchs will be scurrying to position themselves as beneficially as possible while not missing out on any crumbs that remain ripe for the taking. As such, it behooves us all to pay increasingly close attention to their shenanigans. In this regard, we have some excerpts from the following Bloomberg article:

(Bloomberg) — Wall Street has another rule it’s trying to get around: regulations seeking to limit risk-taking by managers of collateralized loan obligations.

Leon Black’s Apollo Global Management LLC, Carlyle Group LP and a unit of Credit Suisse Group AG have all taken steps in the past two months to create CLOs now that they may be able to refinance after the rules take effect in December 2016 without having to comply with the new regulations, according to three people with knowledge of the matter. The firms are trying to avoid a requirement to hold a stake in the funds they manage.

The strategy is an attempt to preserve profits in what’s been one of the hottest and most lucrative businesses during the junk-debt boom of the past six years. By making CLO managers retain a portion of their deals, it becomes less attractive to create funds that have been the biggest buyers of leveraged loans. A record $123.6 billion were issued last year. 

“What people are trying to do now is to anticipate changes that may be needed post-2016 and effectively deal with them while the going is still good,” said Julian Black, a lawyer and global head of structured finance at Appleby Global Group Services Ltd. CLO managers are issuing extra securities now because after December 2016, “a repricing, a refinancing or an additional issuance of notes” would “suddenly become subject to risk retention.”

Randall Whitestone, a Carlyle spokesman, declined to comment, as did Justin Perras of Credit Suisse Asset Management and Scott Helfman a Citigroup spokesman.

If a fund were to refinance after December 2016 “you would have to be compliant,” he said in a telephone interview. “I don’t think it matters if you issued a separate” identifier, known as a CUSIP.

While no one knows how the rules will be enforced, Wall Street is trying to come up with deals that will either comply with the regulation, or get around it.

Aren’t you glad we bailed them out?

See the following related articles published yesterday:

Occupied by Wall Street – The Latest TARP Taxpayer Screw-Job is Revealed

Teachers’ Retirement Funds are Piling into Manhattan Real Estate at Record High Prices

In Liberty,
Michael Krieger

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1 thought on “Occupied by Wall Street Part 2 – Creating CLOs to Bypass Regulations”

  1. It appears everyone is anticipating the worst and hoping to find another rathole for escape.

    Of course,many fund managers know they will be scapegoats for their “masters” and those include the givernments themselves who will do the regging and the sentencing!

    Reply

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