September 5, 2023 - With the growth of the leveraged loan market – both BSL and Private Credit – policy challenges and the need for insight, data and analytics also have grown. In response, the LSTA is adding resources to its Policy and Market Analytics teams.

Earlier this year, Hugo Pereira joined as Vice President of Market Analytics and Investor Strategy, reporting to Ted Basta, Executive Vice President of Market Analytics and Investor Strategy. Hugo spent more than a decade at Refinitiv, where he last held the position of Director of Analysis, focusing on the leveraged loan and CLO markets and product manager for LPC Collateral, Refinitiv’s CLO analytic product. This addition will accelerate additional analytical offerings from the LSTA.

In August, the LSTA brought on board Andrew Berlin as Vice President, Director of Policy Research. Andrew has over a decade of experience writing and conducting research and analysis on the leveraged loan and broader leveraged finance markets at Reorg, Thomson Reuters, Standard & Poor’s and Debtwire. He most recently led the global thought leadership program for the Financial Services Industry and Risk and Compliance practices at the consulting firm Protiviti. In that role, he developed insights pieces, white papers, and industry position papers on banking and capital markets and asset management regulatory and policy matters, often in partnership with financial industry trade organizations. He will lead the market research function within the Policy Group, reporting to the Co-Heads of Policy Tess Virmani and Meredith Coffey.

The LSTA is also looking to hire a legal associate to join the Policy team. (Click here for details about that position.)

Policy Developments and Growth

The LSTA’s Policy Group focuses on regulatory challenges to the corporate loan and CLO markets from the financial regulatory agencies, market shifts like the expansion of ESG investing and exogenous shocks like LIBOR cessation. The Policy Group works closely with the LSTA’s Head of Advocacy Elliot Ganz. The Policy and Advocacy Groups are focusing on a number of critical issues:

1. Private Funds Disclosure Rule.The SEC narrowly adopted a final Private Fund Disclosure Rule that will apply to advisers of private funds, including managers of loan funds. Importantly, while the final Rule exempts a private fund adviser’s CLOs, private credit funds issued under 3(c)(1) and 3(c)(7) exemptions, who provide hundreds of billions of dollars of financing to US companies, still are captured in the Rule. For this reason, the LSTA determined it was critical to litigate the Rule.

2. Kirschner. In an extremely positive development, the Second Circuit Court of Appeals affirmed the District Court’s decision in the Kirschner Case that the term loan in Millenium Labs is not a security. Maintaining the characterization of Term Loan Bs as non-securities has been a critical focus of the LSTA for years. In recent months, the LSTA engaged actively with the Banking Agencies and the SEC on the issue and submitted amicus briefs to both the District Court and the 2nd Circuit. We are gratified that the SEC declined to submit a brief and that the Court adopted the industry’s view; we will discuss the decision and its implications in a webcast on September 6th.

3. Open-End Fund Liquidity Risk Management. The LSTA submitted a comment letter on the Open End Fund Liquidity Risk Management Rule earlier this year and has been developing an Expedited Settlement Arrangement as a potential additional tool in managers’ liquidity risk toolkit.

4. Conflicts of Interest in Securitizations Proposal. The LSTA is drafting its third letter on the SEC’s Proposed Rule on Conflicts of Interest in Securitizations.

5. Custody Proposal. The LSTA submitted its comment letter and has met with the Investment Management staff of the SEC. In both the letter and the meeting, we explained that the proposed rule’s definitions of “custody” and “possession and control” are vague and confusing and do not seem to cover loans. We expressed the view that either the Commission should clarify that loans are covered or agree that the trading and settlement processes currently in place for loans are sufficient to protect against misappropriation of client funds or assets.

6. ESG and Climate Disclosures. Last year the SEC released its first proposed rulemakings on climate and ESG disclosures. The Climate Disclosure Rule, as proposed, would require that SEC registrants provide specific climate-related information in their registration statements and annual reports. In the proposal, these requirements inappropriately extend to publicly traded private funds. Also, the scope of the reporting requirement would have numerous knock-on effects for private companies in a SEC registrant’s value chain. The ESG Fund Disclosure Rule creates categories of funds that, as proposed, would capture nearly all funds and require some degree of specific ESG disclosures. Aside from the overly broad categories of ESG Integration and ESG-Focused Funds, the proposal failed to recognize the limited ESG information available on private companies and how disruptive this rule would be for them. A further look at the issues presented in the proposals and the LSTA’s engagement is available here and here.

7. Conflicts in Predicative Data Analytics. This recent proposal ostensibly targets the use of artificial intelligence by managers but, in reality, goes much further to cover everyday tools managers use, including models and potentially even Excel spreadsheets. This proposal raises important issues for industry participants that go far beyond the impacts on the CLO and loan markets and their participants. The LSTA is considering how best to engage substantively on the proposal.

8. Final Rules Expected. The SEC is due to publish a raft of final rulemakings before the end of the year, including Custody, Climate Disclosure, ESG Disclosures, and Liquidity Risk Management/Swing Pricing.

Please join us in welcoming Andrew Berlin to the Policy team and Hugo Pereira to the Market Analytics team.  Feel free to contact Tess Virmani or Meredith Coffey with policy questions or Ted Basta with analytics questions.