July 2, 2020

Partner Deborah Festa Comments on New Volcker Rule Leniency for CLOs in Bloomberg


Milbank Alternative Investments Practice partner Deborah Festa was recently quoted in the Bloomberg article titled “CLOs Get Volcker Rule Reprieve to Buy More Than Leveraged Loans.” Last week, federal regulators approved changes to the Volcker Rule that allow collateralized loan obligations (CLOs) with US bank investors to purchase bonds and other non-loan assets for their portfolios. These amendments come at a crucial time for the CLO market, particularly in light of the additional flexibility the changes offer in the context of restructurings of loans in CLO portfolios, which are increasing in the current economic environment.

“Even if you are a covered fund, you have a safe harbor that would allow banks to invest in CLOs that have bond buckets in excess of 5% and other securities such as those in restructuring situations like warrants and equity,” says Ms. Festa. “It’s really a question of what the market will support. The jury is out on whether investors will allow managers greater flexibility.”

For more information on the changes, please click here for our client alert: Agencies Ease Volcker Rule Restrictions for CLOs.