The LSTA v. SEC litigation, which established that the U.S. risk retention rules do not apply to managers of open-market CLOs, is now effectively concluded, subject only to the highly unlikely possibility of a petition to the U.S. Supreme Court by the government. This results from a recent District Court action implementing the Court of Appeals’ ruling in favor of the LSTA and the securitization industry.
This Sidley Update provides details about the District Court action and offers some thoughts about the applicability of LSTA to other securitization structures. Our thoughts are based principally on the central teaching of the case: To be a “sponsor” falling within the legitimate statutory scope of the risk retention requirements, a party must, as a substantive matter, “actually be a transferor” of the securitized assets to the issuer, directly or indirectly.
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