Milbank Alternative Investments Practice partner Deborah Festa was recently quoted in the Reuters article titled “BDCs Can Hold Risk Without Violating Dodd-Frank Rules, SEC Says.” The Securities and Exchange Commission came to a decision on September 7 allowing Business Development Companies (BDCs) to hold a portion of Collateralized Loan Obligations (CLOs) without violating Dodd-Frank rules, which regulate closed-end funds. The decision provides an opening to allow managers to transition loans from their BDC into a CLO and to pass the retention back into the BDC through the adviser.
“This is a major development,” says Ms. Festa. “The results should be a significant increase in middle market CLO activity by BDCs that are able to originate all of the loans acquired by their CLOs.”
