Rating Agency Developments

On July 22, Moody’s republished its credit rating methodology report on EMEA CMBS transactionsReport.

On July 20, DBRS published updated Canadian surveillance methodology for CDOs of large corporate creditReport.

On July 16, DBRS published updated rating methodology for North American commercial mortgage servicer evaluationsReport.

Summary of Crescent No-Action Letter

On July 17, 2015, the SEC published a no-action letter addressing the effect on the sponsor’s credit risk retention requirement of the refinancing of one or more tranches of existing CLO debt, an issue which has been of considerable interest to the CLO sector as it directly affects the utility of the refinancing option in transactions done before the adoption of the credit risk retention rules.  In response to a request submitted by Crescent Capital Group LP, the SEC indicated that under the terms and conditions described in the request, such a refinancing of collateralized loan obligations priced prior to the December 24, 2014 publication of the final credit risk retention rules would not trigger the application of the credit risk retention requirement to the CLO.  In order to be entitled to such treatment, among other things, (i) the refinancing must be completed within four years of the original closing date, (ii) the interest rate of the refinancing notes must be lower than the rate of the refinanced notes, (iii) other than the reduction in rates, the capital structure must remain unchanged and the principal amount, priority of payment, voting and consent rights and stated maturity of the refinancing notes must be the same as the refinanced notes, (iv) the investment criteria applicable to the CLO must remain unchanged, (v) the proceeds from the refinancing must be applied to repay the refinanced notes (and not applied as a means to acquire other assets), (vi) no additional subordinate interests may be issued in connection with the refinancing nor may the identities of the subordinated interest holders be changed as a result of the refinancing and (vii) while refinancing of different classes of notes may occur on different dates, each class may be refinanced only once.  In addition, the offering document for the refinancing notes must prominently state, among other things, that the sponsor is not retaining a risk retention interest in connection with the refinancing.  The no-action request and the SEC’s response are available through this link.

Treasury Request for Public Input on Expanding Access to Credit through Online Marketplace Lending

“Online marketplace lending refers to the segment of the financial services industry that uses investment capital and data-driven online platforms to lend to small businesses and consumers.”[1]

On July 20, the Department of the Treasury published a Notice and Request for Information (“RFI”) seeking comment on various aspects of online marketplace lending, including –

  • the business models and products offered to small businesses and consumers
  • the potential to expand access to credit to underserved market segments
  • how the financial regulatory framework should evolve to support the growth of the industry
  • Treasury asks for comment on 14 categories of questions, some of which include multiple specific questions, which we summarize and, with respect to some, offer initial thoughts on below.

To view the full article, please click here.


[1] 80 Fed. Reg. 42866 (July 20, 2015)

HUD Announces Final Rule on Affirmatively Furthering Fair Housing

On July 8, the U.S. Department of Housing and Urban Development announced a final rule today to equip communities that receive HUD funding with data and tools to help them meet long-standing fair housing obligations in their use of HUD funds. Although the final rule will take effect 30 days after publication, it will not be fully implemented immediately.  Release.

Rating Agency Developments

On July 8, Moody’s issued Rating Methodology – Moody’s Approach to Rating Transactions Backed by Portfolios of Hedge Fund InvestmentsReport.

On July 9, Moody’s issued Rating Methodology – Moody’s Approach to Rating Asset-Backed Commercial PaperReport.

On July 10, Fitch published Updated Global Structured Finance & Covered Bonds Criteria HierarchyRelease.

On July 13, Fitch updated its Global Surveillance Criteria for Structured Finance CDOsRelease.

On July 14, Fitch finalized new Insurance Notching CriteriaRelease.

Madden v. Midland Funding, LLC

On May 22, the Second Circuit Court of Appeals ruled that when a nonbank entity purchases loans from a national bank, the interest rate the nonbank entity may charge is limited to the rate of interest of the state of residence of the obligor (See Madden v. Midland Funding, LLC 2015 U.S. App. LEXIS 8483 (May 22, 2015).  The court stated that because the entity is not a national bank or its agent, or otherwise acting on behalf of a national bank, and because applying state law would not significantly interfere with the national bank’s ability to sell loans to third parties, the National Bank Act did not preempt the obligor’s claim that the rate charged on the loan exceeded state rate ceilings.

SEC Proposes Rules Requiring Companies to Adopt Clawback Policies on Executive Compensation

On July 1, the Securities and Exchange Commission proposed rules directing national securities exchanges and associations to establish listing standards requiring companies to adopt policies that require executive officers to pay back incentive-based compensation that they were awarded erroneously.  Recovery would be required without regard to fault.  The proposed rules would also require disclosure of listed companies’ recovery policies, and their actions under those policies.  The comment period for the proposed rules will be 60 days after publication in the Federal Register.  Release.

Federal Reserve Releases First Determination of Aggregate Consolidated Liabilities of all Financial Companies

On July 1, the Federal Reserve Board released its first determination of the aggregate consolidated liabilities of all financial companies in accordance with section 622 of the Dodd-Frank Act, which prohibits any financial company from combining with another company if the resulting company’s liabilities exceed 10 percent of the aggregate consolidated liabilities of all financial companies.  Release.