Additional Comments on Ownership Interests in Connection with Certain CLO Debt Securities

SIFMA, the Loan Syndications and Trading Association (LSTA), the Structured Finance Industry Group (SFIG), and The Financial Services Roundtable (FSR) provide additional comments to the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) (collectively, the Agencies) in connection with certain aspects of the final rule implementing the Volcker Rule, adopted by the respective agencies (Agencies) on December 10, 2013.

The Associations’ first comments were filed December 24, 2013.

In these additional comments, the Associations detail reasons for their request that the Agencies confirm that the CLO debt securities described in the December 24 Letter are not “ownership interests” at the same time, and in the same administrative proceeding, that it considers relief for debt security holders of collateralized debt obligations (CDOs) backed by trust preferred securities (TruPS).

In the absence of the requested relief, the potential negative impact on CLO debt security holders is enormous. While analysts estimate that banking entities hold approximately $3 billion in the debt securities of TruPS CDOs, banking entities hold an estimated $60-70 billion in debt securities of CLOs. The confusion surrounding whether CLO debt securities may be ownership interests has already started to affect the CLO market, and could precipitate a significant market disruption.