![]() The continuing debate could ultimately translate into shallower liquidity for deals using more aggressive structures. “I haven’t actually seen any independent confirmation that a structure even fits the proposed regulation,” the CLO investor said. While some consider entities that only buy and securitise loans as acceptable, others view these as breaching the rules. Views in the market also vary drastically on which structures are allowed under the new definitions. ![]() When your hand is forced, you take the route that you have to.” ![]() “But it’s clearly a capital intensive route that we’re taking so I don’t think many have really got the option. “No one is going to give you the financing for nothing so there’s clearly a cost to an originator structure,” said the CLO manager. GSO began marketing the deal earlier in the year, but held off until there was clarity on the regulation, according to market sources. Investors have certainly seemed more comfortable in taking down originator-style deals in recent weeks.īlackstone’s GSO Capital Partners priced its Tymon Park CLO earlier this month, using the originator structure. “They are very much larger scale, blue-blooded, credit businesses that buy assets, hold assets, trade assets and maximise returns for their investors.” FALSE HOPE He added that this is not the case with the originator platforms seen so far. “It essentially prohibits you from being an eligible retainer if your sole purpose is securitisation,” said Ranero, whose firm was one of five that lobbied regulators on behalf of the industry. The framework now adopts some of the language proposed by managers while introducing an anti-abuse “originator for a day” provision. The plans triggered debate and prompted the industry to lobby regulators for more flexible rules. “The draft in August was problematic and probably would have shut down originator-type arrangements,” said Franz Ranero, partner at Allen & Overy. The EU has long struggled to strike a regulatory balance that allows for separate risk retention entities, while also barring shell vehicles set up only to circumvent the rules.Įarlier this year, leaked drafts of the proposed rules suggested the EU was heading towards closing the third-party loophole - effectively killing off the originator model. “I expect the rules to continue to change because every time the EC has opened the door, they’ve tried to close it again.” YEARS OF UNCERTAINTY ![]() “Ultimately, if you’re doing something to get around regulation and it has divorced the credit decision-making from the capital at risk, then I don’t think that type of structure is going to survive,” said a CLO investor. While this is good news for the growing number of CLO managers that have used this “originator” structure, some market players do not think the model is sustainable. ![]()
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