IB 

Union Calendar No. 462 

114TH CONGRESS 

2D SESSION H. R. 4166 

[Report No. 114–596] 

To amend the Securities Exchange Act of 1934 to provide specific credit 

risk retention requirements to certain qualifying collateralized loan obligations. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 3, 2015 

Mr. BARR (for himself and Mr. DAVID SCOTT of Georgia) introduced the 

following bill; which was referred to the Committee on Financial Services 

MAY 26, 2016 

Additional sponsors: Mr. FOSTER, Mr. GUINTA, Mr. HUIZENGA of Michigan, 

Mrs. WAGNER, Mr. MARCHANT, Mr. STIVERS, Mr. MCHENRY, Mr. 

FITZPATRICK, Mr. LUETKEMEYER, Mr. CARNEY, and Mr. HILL

MAY 26, 2016 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on December 3, 2015] 


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A BILL 

To amend the Securities Exchange Act of 1934 to provide 

specific credit risk retention requirements to certain 

qualifying collateralized loan obligations. 


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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Expanding Proven Fi5 nancing for American Employers Act’’. 

6 SEC. 2. RISK RETENTION REQUIREMENT FOR QUALIFIED 

7 COLLATERALIZED LOAN OBLIGATIONS. 

8 Section 15G(e) of the Securities Exchange Act of 1934 

9 (15 U.S.C. 780–11(e)) is amended by inserting after para10 graph (6) the following new paragraphs: 

11 ‘‘(7) REQUIREMENTS FOR QUALIFIED

12 COLLATERALIZED LOAN OBLIGATIONS.— 

13 ‘‘(A) RISK RETENTION REQUIREMENT.— 

14 Notwithstanding any other provision of this sec15 tion, as of the effective date set forth in sub16 section (i)(2), the risk retention requirement for 

17 qualified collateralized loan obligations may be 

18 met by the purchase and, during the applicable 

19 duration of risk retention specified by the rules 

20 of the Federal banking agencies under subsection 

21 (c)(1)(C)(ii), holding (without hedging or other22 wise transferring the credit risk), of the value of 

23 no less than five percent of the equity distributed 

24 among each of the higher tranches of the issuance 

25 with no less than 3.5 percent retained as equity 


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1 of the collateralized loan obligation by the man2 ager of the qualified collateralized loan obliga3 tion or one or more of the majority-owned affili4 ates of the manager or its knowledgeable employ5 ees and other employees. 

6 ‘‘(B) QUALIFIED COLLATERALIZED LOAN

7 OBLIGATIONS.—For purposes of this paragraph, 

8 a qualified collateralized loan obligation is a 

9 collateralized loan obligation that meets all of the 

10 following requirements: 

11 ‘‘(i) ASSET QUALITY PROTECTIONS.— 

12 The collateralized loan obligation shall— 

13 ‘‘(I) have at least 100 percent of 

14 its assets comprised of senior secured 

15 loans and cash equivalents; 

16 ‘‘(II) have 100 percent of its loan 

17 assets issued by companies; 

18 ‘‘(III) have no assets that are 

19 asset-backed securities or derivatives, 

20 except that this limitation shall not 

21 prohibit a qualified collateralized loan 

22 obligation from acquiring a loan par23 ticipation or any interest related to or 

24 in a letter of credit, or entering into 


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1 derivative transactions to hedge inter2 est rate or currency rate mismatches; 

3 ‘‘(IV) not purchase assets in de4 fault, margin stock, or equity convert5 ible securities; 

6 ‘‘(V) acquire only loans held or 

7 acquired by three or more investors or 

8 lenders unaffiliated with the manager; 

9 ‘‘(VI) hold only loans to borrowers 

10 whose financial statements are subject 

11 to an annual audit from an inde12 pendent, accredited accounting firm; 

13 ‘‘(VII) have no more than 60 per14 cent of its assets comprised of covenant 

15 lite loans, except that each asset shall 

16 require the disclosure of unaudited fi17 nancial statements quarterly within 45 

18 days of the end of the quarter and au19 dited financial statements annually 

20 within 90 days of the end of the fiscal 

21 year; and 

22 ‘‘(VIII) at the time of purchase of 

23 any asset, comply with the require24 ments of subclauses (I) and (VII) and 

25 clause (ii) of this subparagraph, or, if 


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1 not in compliance with any such re2 quirement, maintain or improve the 

3 level of compliance after giving effect to 

4 such purchase. 

5 ‘‘(ii) ASSET PORTFOLIO PROTEC6 TIONS.— 

7 ‘‘(I) No more than 3.5 percent of 

8 the assets of the collateralized loan obli9 gation may relate to any single bor10 rower. 

11 ‘‘(II) No more than 15 percent of 

12 the assets of the collateralized loan obli13 gation may relate to any single indus14 try. 

15 ‘‘(iii) STRUCTURAL PROTECTIONS.— 

16 ‘‘(I) The collateralized loan obli17 gation’s equity shall be at least 8 per18 cent of the value of its assets. 

19 ‘‘(II) The governing transaction 

20 documents of the collateralized loan ob21 ligation specify over-collateralization 

22 and interest coverage tests, and if any 

23 such test falls below the required level 

24 specified for the collateralized loan ob25 ligation in such documents, available 


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1 interest collections (and if necessary, 

2 available principal collections) must be 

3 applied to repay the collateralized loan 

4 obligation’s debt in order of seniority 

5 until compliance with the applicable 

6 test is restored. 

7 ‘‘(iv) REQUIREMENT TO MAINTAIN

8 ALIGNMENT OF MANAGER AND INVESTOR IN9 TERESTS.— 

10 ‘‘(I) The collateralized loan obli11 gation shall be an open market 

12 collateralized loan obligation. 

13 ‘‘(II) The holders of the equity of 

14 the collateralized loan obligation (ex15 cluding the risk retention equity held 

16 as required by subparagraph (A)) shall 

17 have the right to remove by vote the 

18 manager for cause. 

19 ‘‘(III) A majority of the man20 ager’s fees, including any incentive fee, 

21 shall be subordinated to payments then 

22 due in relation to the collateralized 

23 loan obligation’s debt securities. 

24 ‘‘(IV) The manager’s discre25 tionary sales of assets on behalf of the 


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1 issuer of the collateralized loan obliga2 tion shall be limited each year to not 

3 more than 30 percent of the principal 

4 amount of the assets of the 

5 collateralized loan obligation (other 

6 than sales of defaulted or credit-dete7 riorated, credit-risk, or credit-improved 

8 loans). 

9 ‘‘(V) The risk retention equity re10 quirement set forth in subparagraph 

11 (A) is met. 

12 ‘‘(VI) All holders of collateralized 

13 loan obligation securities that are U.S. 

14 persons within the meaning of Regula15 tion S (17 C.F.R. 230; 249) under the 

16 Securities Act of 1933, are qualified 

17 investors. 

18 ‘‘(v) REGULATORY OVERSIGHT RE19 QUIREMENTS.— 

20 ‘‘(I) The manager of the 

21 collateralized loan obligation shall be 

22 registered with the Commission as an 

23 investment adviser under section 203 

24 of the Investment Advisers Act of 1940 

25 (15 U.S.C. 80b–3). 


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1 ‘‘(II) All purchases and sales of 

2 the assets of the collateralized loan obli3 gation shall be conducted on an arm’s4 length basis and in compliance with 

5 any applicable provisions of the Invest6 ment Advisers Act of 1940. 

7 ‘‘(vi) REQUIREMENTS RELATING TO

8 TRANSPARENCY AND DISCLOSURE.—A 

9 monthly report shall be made available to 

10 holders of debt securities of the collateralized 

11 loan obligation, which includes information 

12 regarding— 

13 ‘‘(I) a list of assets of the 

14 collateralized loan obligation, includ15 ing, with respect to each asset, the obli16 gor name; the CUSIP (or security 

17 identifier) if applicable, the interest 

18 rate and maturity date, the type of 

19 asset, and the market price for each 

20 asset where available; 

21 ‘‘(II) with respect to the portfolio 

22 of assets, the aggregate principal bal23 ance and aggregate adjusted collateral 

24 principal amount (adjusted as required 

25 by the collateralized loan obligation 


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1 governing transaction documents) and 

2 the percentage of such aggregate ad3 justed collateral principal represented 

4 by each asset; 

5 ‘‘(III) information relating to 

6 each applicable over-collateralization 

7 test and interest coverage test and the 

8 level of compliance in relation to each 

9 test; 

10 ‘‘(IV) all purchases, repayments, 

11 and sales of assets; and 

12 ‘‘(V) the identity of each defaulted 

13 asset as defined in the related trans14 action documents. 

15 ‘‘(8) DEFINITIONS FOR PURPOSES OF PARA16 GRAPH (7).—For purposes of paragraph (7), the fol17 lowing definitions apply: 

18 ‘‘(A) BALANCE SHEET COLLATERALIZED

19 LOAN OBLIGATION.—The term ‘balance sheet 

20 collateralized loan obligation’ means a 

21 collateralized loan obligation— 

22 ‘‘(i) whose assets consist predominantly 

23 of loans originated and transferred to the 

24 collateralized loan obligation by one or 

25 more of its affiliates other than in— 


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1 ‘‘(I) open market transactions; 

2 ‘‘(II) from an open market 

3 collateralized loan obligation; or 

4 ‘‘(III) from a collateralized loan 

5 obligation in existence as of the effec6 tive date of this paragraph that is not 

7 a balance sheet collateralized loan obli8 gation; and 

9 ‘‘(ii) the assets and liabilities of which 

10 are, immediately after issuance of its asset11 backed securities in a securitization trans12 action, included under generally accepted 

13 accounting principles in the consolidated 

14 balance sheet of one or more of its affiliates. 

15 ‘‘(B) COLLATERALIZED LOAN OBLIGA16 TION.—The term ‘collateralized loan obligation’ 

17 means any issuing entity of an asset-backed se18 curity, as defined in section 3(a)(79) of the Secu19 rities Exchange Act of 1934 (15 U.S.C. 

20 78c(a)(79)), that is comprised primarily of com21 mercial loans. 

22 ‘‘(C) COVENANT LITE LOAN.—The term ‘cov23 enant lite loan’ means, at the time the 

24 collateralized loan obligation enters into a comVerDate Sep 11 2014 23:21 May 26, 2016 Jkt 059200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6203 E:\BILLS\H4166.RH H4166

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1 mitment to acquire such loan, a loan for which 

2 the underlying instruments neither— 

3 ‘‘(i) require the obligor to comply with 

4 any maintenance covenant; nor 

5 ‘‘(ii) contain a cross-default provision 

6 to a financing facility of the obligor that re7 quires the obligor to comply with a mainte8 nance covenant (including one that may 

9 apply only upon the funding of such other 

10 loan or financing facility); except that if 

11 such loan is pari passu with another loan 

12 of the obligor that would not be a covenant 

13 lite loan under the criteria in this clause, 

14 such loan shall be deemed not to be a cov15 enant lite loan. For purposes of this clause, 

16 the term ‘pari passu’ means treated equally 

17 and without preference. 

18 ‘‘(D) EQUITY.—The term ‘equity’ means the 

19 most junior class of securities issued by the 

20 collateralized loan obligation (excluding any 

21 non-economic security such as the issuer’s com22 mon stock) and any additional class(es) of secu23 rities junior to the collateralized loan obliga24 tion’s debt securities. 


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1 ‘‘(E) MANAGER.—The term ‘manager’ 

2 means an investment manager that is respon3 sible for managing a collateralized loan obliga4 tion under the collateralized loan obligation’s 

5 governing transaction documents. 

6 ‘‘(F) OPEN MARKET COLLATERALIZED LOAN

7 OBLIGATION.—The term ‘open market 

8 collateralized loan obligation’ means a 

9 collateralized loan obligation— 

10 ‘‘(i) whose assets consist predominantly 

11 of senior, secured syndicated loans acquired 

12 by such collateralized loan obligation di13 rectly from the sellers thereof in an open 

14 market transaction or from another 

15 collateralized loan obligation and of tem16 porary investments; 

17 ‘‘(ii) that is managed by a manager; 

18 and 

19 ‘‘(iii) that is not a balance sheet 

20 collateralized loan obligation. 

21 ‘‘(G) OPEN MARKET TRANSACTION.—The 

22 term ‘open market transaction’ means— 

23 ‘‘(i) either an initial loan syndication 

24 transaction or a secondary market trans25 action in which a seller offers senior, seVerDate Sep 11 2014 23:21 May 26, 2016 Jkt 059200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6203 E:\BILLS\H4166.RH H4166

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1 cured syndicated loans to prospective pur2 chasers in the loan market on market terms 

3 on an arm’s length basis, which prospective 

4 purchasers include, but are not limited to, 

5 entities that are not affiliated with the sell6 er; or 

7 ‘‘(ii) a reverse inquiry from a prospec8 tive purchaser of a senior, secured syn9 dicated loan through a dealer in the loan 

10 market to purchase a senior, secured syn11 dicated loan to be sourced by the dealer in 

12 the loan market. 

13 ‘‘(H) QUALIFIED INVESTOR.—The term 

14 ‘qualified investor’ means— 

15 ‘‘(i) with respect to securities that re16 quire the payment of principal and interest, 

17 an investor that is a qualified purchaser, 

18 within the meaning of section 3(c)(7) of the 

19 Investment Company Act of 1940 (15 

20 U.S.C. 80a–3(c)(7)) or an entity owned ex21 clusively by one or more qualified pur22 chasers; or 

23 ‘‘(ii) with respect to securities that do 

24 not require the payment of principal and 

25 interest— 


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1 ‘‘(I) if the qualified collateralized 

2 loan obligation relies on such section 

3 for its exclusion from the definition of 

4 investment company under the Invest5 ment Company Act of 1940— 

6 ‘‘(aa) a qualified purchaser; 

7 ‘‘(bb) a knowledgeable em8 ployee, within the meaning of 

9 Rule 3c–5 promulgated under the 

10 Investment Company Act of 1940; 

11 or 

12 ‘‘(cc) an entity owned exclu13 sively by such a qualified pur14 chaser or knowledgeable employee; 

15 or 

16 ‘‘(II) if the qualified collateralized 

17 loan obligation relies on Rule 3a–7 

18 promulgated under the Investment 

19 Company Act of 1940 for its exclusion 

20 from the definition of investment com21 pany under that Act and such securi22 ties are not fixed-income securities, as 

23 defined in such rule— 

24 ‘‘(aa) a qualified institu25 tional buyer, within the meaning 


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1 of Rule 144A under the Securities 

2 Act of 1933; 

3 ‘‘(bb) a person (other than 

4 any rating organization rating 

5 the issuer’s securities) involved in 

6 the organization or operation of 

7 the issuer or an affiliate of such a 

8 person, as defined in Rule 405 

9 under the Securities Act of 1933; 

10 or 

11 ‘‘(cc) any entity in which all 

12 of the equity owners are such 

13 qualified institutional buyers as 

14 described in item (aa) or persons 

15 described in item (bb).’’. 


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Union Calendar No. 462 

114TH CONGRESS 

2D SESSION H. R. 4166 

[Report No. 114–596] 

A BILL 

To amend the Securities Exchange Act of 1934 to 

tions. to certain qualifying collateralized loan obligaprovide specific credit risk retention requirements 

MAY 26, 2016 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union, 


srobinson on DSK5SPTVN1PROD with BILLS