Reuters: CLO market experiments with built-in margin reset to manage regulatory exposure

Managers are considering embedding a new repricing feature in US Collateralized Loan Obligation (CLO) funds that would protect firms from regulation that requires them to hold 5% of their funds and save money on full refinancings.

The US$458bn CLO market is still analyzing new structures and features to help it to comply with rules in the Dodd-Frank Act that took effect in December that require managers to hold some of their funds’ risk.

Crescent Capital Group issued the first CLO with an Applicable Margin Reset (AMR) in June, which allows CLOs to be repriced without managers having to update regulatory valuation analysis or buy more retention. Other managers have also begun researching the structure, which is expected to be used more widely.

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