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New Rules to Reduce CLO Formation by $250 Billion, Study Says 

December 20, 2013
Sridhar Natarajan, Businessweek

Implementation of risk-retention rules will “severely limit” the supply of collateralized loan obligations, potentially increasing financing costs for U.S. companies, according to a study sponsored by the Loan Syndications and Trading Association.

The rules being considered as part of the Dodd-Frank Act to curb risk taking at banks might reduce CLO formation by as much as $250 billion according to the study, which was conducted by consulting firm Oliver Wyman and released today. Non-investment grade borrowers would be forced to seek more expensive sources of credit, with annual interest expenses increasing by as much as $3.2 billion, according to the report.

“The unintended consequences of the current risk-retention rules would severely impact American companies that rely on CLOs for financing and affordable credit,” Meredith Coffey, executive vice president of the LSTA, said in a statement distributed by the trade group. 

Read more: Businessweek

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