June 6, 2024 - This week the Board of International Organization of Securities Commissions (IOSCO) published its final report detailing Leveraged Loans and CLOs Good Practices for Consideration (Final Report). This report largely reflects the “Good Practices” that were outlined in IOSCO’s September consultation report, but includes IOSCO’s summary of and response to market feedback on that report. The 12 Good Practices continue to cover the same five broad themes:

• Origination and refinancing based on a sound business premise
• EBITDA and loan documentation transparency
• Strengthening alignment of interest  from  loan  origination  to  end investors
• Addressing interests of different market participants throughout the intermediation chain  
• Disclosure of information on an ongoing basis.

Here we offer preliminary takeaways from the Final Report:

• We are told IOSCO received 10 responses on the consultation report, largely from trade associations; however, they are only offered in an anonymized, summary fashion.
• The feedback appears varied – potentially reflecting the viewpoints of different jurisdictions.
• IOSCO declined to reconsider publishing the Final Report as was urged by the LSTA and others given the leveraged loan and CLO markets are functioning successfully. (See here for a summary of the LSTA’s comment letter.)
• The Final Report does not fully include the specific U.S. market-focused feedback the LSTA recommended in its comment letter.
• While the Good Practices remain largely in their original form, the Final Report includes important adjustments and clarifications. Of note, the Final Report highlights that IOSCO acknowledges redundancy/overlap with existing regulatory schemes in some jurisdictions and the Good Practices are not meant to interfere where that is the case. The Final Report is drafted with a global audience in mind.
• IOSCO’s primary focus seems to be increased transparency.
• Refinements were made to more accurately reflect the roles of the different parties in the transactions, their responsibilities to one another, and the sophistication of potential lenders and CLO investors.

It is also important to note that the Good Practices are not standards or recommendations – a fact which IOSCO emphasizes throughout the Final Report – and it remains to be seen how they will be viewed by global market participants. The LSTA will share a fulsome review of the Final Report in due course once we have had the opportunity engage with members.