NEW YORK, March 20, 2015 – Cathy Martin, special counsel in Milbank, Tweed, Hadley & McCloy’s Alternative Investments Practice, was mentioned in a recent S&P Capital IQ LCD article titled, “Volcker SOTUS Clarification Helpful, but CLO Impact May Be Limited.”
The article explains the February 27th clarification to the SOTUS (Solely Outside of the United States) exemption and discusses its implications:
“In legal speak, that means a foreign bank can invest in voting, non-compliant paper of a CLO even though the CLO is a covered fund marketed to U.S. investors, provided the foreign bank is not itself involved in marketing the CLO to U.S. investors or sponsoring the vehicle (ie., directly or through an affiliate, providing management or investment advisory services, or acting as a commodity pool operator), and provided the other requirements of the SOTUS exemption are also maintained (ie. not owned or controlled by a U.S. entity, the investment is in accordance with the Bank Holding Company Act, and the investment and any hedging or funding of the investment otherwise occurs solely outside of the U.S.), according to law firm Milbank, Tweed, Hadley & McCloy.”
Cathy Martin notes that, “A U.S. arranging bank can hold ownership interests in a covered fund (such as voting interests in a non-Volcker-compliant CLO) if the position is related to the bank’s role as an ‘underwriter’ in a ‘distribution’ of the CLO interests, subject to various limits and requirements.” Ms. Martin continues, “It is feasible for a U.S. arranger to place non-Volcker-compliant CLO interests in the U.S., but if the arranger’s customer/investor base consists largely of U.S. banking entities subject to Volcker, then the market won’t be there.”
