UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

____________________________________ ) THE LOAN SYNDICATIONS AND ) TRADING ASSOCIATION , ) ) Plaintiff, ) ) v. ) Civil Action No. 16

- 652 (RBW) ) SECURITIES AND EXCHANGE ) COMMISSION a nd BOARD OF ) GOVERNORS OF THE ) FEDERAL RESERVE SYSTEM , ) ) Defendants. )

______ ______________________________) MEMORANDUM OPINION The plaintiff, the Loan Syndications and Trading Association, “a not

- for

- profit trade associati on representing members participating in the syndicated corporate loan market, ” Plaintiff’s Motion for Summary Judgment (“Pl.’s Mot”), Exhibit (“Ex.”) A (Opening Brief of Petitioner (“Pet’r’s Br.”)) at iii, brings this action against the defendants, the Se curities and Exchange Commission ( “ SEC ” ) and the Board of Governors of the Federal Reserve System ( the

“ Board ” ), seeking review of the final rules adopted by the se and other agencies pursuant to Section 941 of the Dodd

- Frank Wall Street Reform and Consumer Protection Act. Complaint ( “ Compl. ” ) , Ex. A ( Petition for Review ) at 1 . Currently before the Court are the P laintiff ’ s Motion for Summary Judgment and the Defendants ’ Motion for Summary Judgment ( “ Defs. ’
Mot. ” )

. 1 After carefully considering these motio ns and the Administrative R ecord ( “ A.R. ” ) , the

1 The plaintiffs originally filed this action in the District of Columbia Circuit. See Judgment (Mar. 18, 2016), ECF No. 1. After the case w as transferred to this Court, the Court issued an order granting the parties’ joint request to file their appellate briefs as motions for summary judgment. See Minute Order, Apr. 18, 2016.2 Court concludes for the reasons that follow that it must deny the plaintiff ’ s motion and grant the defendants ’ motion. 2
I. B ACKGROUND A. The Dodd
- Frank Act This case concerns the Office of the Comptroller of the Currency ’s , the Board of Governors of the Federal Reserve System ’s , the Federal Deposit Insurance Corporation ’s , and the SEC’s (“the agencies ’ ”) 3 joint implementation of an amendment to the Securities Exchange Act of 1934 , added by Section 941 of the extensive Dodd

- Frank Wall Street Reform and Consumer Protection Act ( “ Dodd

- Frank Act ” ). See Pub. L. No. 111

- 203, § 941 , 124 Stat

. 1376 (2010) (codified at 15 U.S.C. § 78o

- 11 (2012) ) . This amendment requires the agencies to

“ jointly prescribe regulations to require any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset

- backed security, transfers, sel ls, or conveys to a third party. ” 4 15 U.S.C. § 78o

- 11 (b)(1)

. Con gress defined a “ securitizer ” as: “ (A) an issuer of an asset

- backed security; or (B) a person who organizes and initiates an asset

- back ed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliat e, to the issuer. ” Id. § 78o

- 11(a)(3). Congress further directed the agencies to require that securitizers retain “ not less than [five]

2 In addition to the filings already identified, the Court conside red the following documents in rendering its decision: (1) the Defendants’ Opposition to Plaintiff’s Motion for Summary Judgment (“Defs.’ Opp’n”); (2) the Plaintiff’s Opposition to Defendants’ Cross

- Motion for Summary Judgment and Reply in Support of Plai ntiff’s Motion for Summary Judgment (“Pl.’s Reply”); (3) the Brief for the Chamber of Commerce of the United States of America as Amicus Curiae Supporting Petitioner (“Pl.’s Amicus”); and (4) the Brief of Better Markets, Inc. as Amicus Curiae in Support of Respondents Securities and Exchange Commission and Board of Governors of the Federal Reserve System (“Defs.’ Amicus”).

3 The SEC and the Board are the only agency defendants named in this matter because the plaintiff only challenges the rules adopted by these two entities

. See Pl .’s Mot., Ex. A (Pet’r’s Br.) at i.

4 The statute also requires the Secretary of Housing and Urban Development and the Federal Housing Finance Agency to join the four agencies identified above in jointly prescribing regulation s regarding the securitization of any residential mortgage asset. 15 U.S.C. § 78o

- 11(b)(2).3 percent of the credit risk ” , id. § 78o

- 11(c)(1)(B)(i), for all applicable assets , and to “ establish appropriate standa rds for retention of an economic interest with respect to collateralized debt obligations, securities collateralized by collateralized debt obligations, and similar instruments collateralized by other asset

- backed securities , ” i d. § 78o

- 11(c)(1) (F). In ad dition, the agencies

a re permitted to provide “ total or partial exemption[s] ” for securitizations “ as may be appropriate in the public interest and for the protection of investors. ” Id. § 78o

- 11(c)(1)(G).
B. Open Market Collateralized Loan Obligations The core of this case concerns the operation of the term “securitizer” and the corresponding joint regulation issued by the agencies to implement the credit risk retention mandate in relation to the entities and processes associated with collateralized loa n obligations ( “ CLOs ” ). As the Court understands from the parties ’ filings , a CLO is a type of securitization
or asset

- backed security , backed by loans that are typically made from banks to commercial borrowers with low credit ratings or large debt obliga tions

. See Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at
2 ( “ CLOs are securitizations backed by large loans generally origi nated by the largest U.S. banks and provided to large commercial enterprises with relatively high levels of debt

. . . . ” ) ; Defs. ’ Mot., Ex. A (Brief for Respondents ( “ Resp’ts’ Br. ” ) ) at 5 ( “ A collateralized loan obligation . . . is a type of collateralized debt obligation

. . . that is primarily backed by loans made to corporate borrowers without strong credit

. ” ). The type of CLO s involved here are the so - called “ op en market CLO s . ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br. ) at 7. Open market CLOs “ securitize assets purchased on the primary or secondary markets based on the CLO ’ s particular investment guidelines. ” Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 5

– 6 ;

see also Pl

. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 7. Open market CLOs are distinguishe d from “ balance

sheet CLOs , which are instead designed by the owner of leveraged loans, ” Pl. ’ s Mot., Ex. A4 (Pet ’ r ’ s Br.) at 7, and “ generally securitize loans already held in an institution ’ s portfolio, including assets it has originated, ” Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 5. Essentially, m anagers of open market CLOs direct the purchase of loans in accordance with certain “ investment parameters ” negotiated with investor s , Pl.’s Mot., Ex. A (Pet’r’s Br.) at 7, through a special purpose vehicle , which is “formed expressly to issue the [asset

- backed security] , ” Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 6. An open market CLO manager has a certain level of discretion in selecting loans on the market and later “ operate s the CLO and manage s its loan portfolio. ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 8; see also Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 6. C. The Agencies’ Rulemaking The dispute before the Court evolves from the agencies’ d ecision to regulate open market CLO managers pursuant to Section 941 of the Dodd

- Frank Act

. T he defendants , along with the other relevant agencies identified earlier, supra at 2, issued a joint notice of proposed rulemaking and solicited comment s on the D odd

- Frank Act ’ s credit risk retention provisions

. A.R. at JA0176 ( Credit Risk Retention, 76 Fed. Reg. 24090 , 24090

– 91 ( Apr. 29, 2011) (the “initial proposed rule” ) )

. In this initial proposed rule , “ [ t ] he A gencies noted that the second prong of ” the statu tory definition of “ securitizer ” 5 “ is substantially identical to the definition of a ‘ s ponsor ’ of a securitization transaction in the [SEC’s regulation] governing disclosures for [asset

- backed security] offerings registered under the Securities Act. ” Id. at JA0184 (76 Fed. Reg. at 24098 )

. This pre - existing regulation defines “ a ‘ sponsor ’ as a person who organizes and initiates an asset

backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affi liate, to the issuing entity. ” Id. at JA0184 (76 Fed. Reg. at 24098 n.40 (citing 17 C

. F

. R

. § 229.1101 (2014) ) ) . The agencies specifically noted that a “ CLO manager

5 “[A] person who organizes and initiates an asset

- backed transaction by selling or transferring assets, either directly or indirectly, including through an affili ate, to the issuer . . . .” 15 U.S.C. § 78o

- 11(a)(3)(B).5 generally acts as the sponsor by selecting the commercial loans to be purchased by an agen t bank for inclusion in the CLO c ollateral pool, and then manage s the securitized assets once deposited in the CLO structure. ” Id. at JA0184 (76 Fed. Reg. at 24098 n.42)

. Accordingly, the agencies decided that the definition of “securitizer” included ope n market CLO managers , and thus these managers would be subject to the statute’s credit risk retention mandate

. Id. The agencies also proposed a “ menu of options approach ” with regard to the statute ’ s credit risk retention mandate

. Id. at JA0187 ( 76 Fed . Reg. at 24101 )

. A securitizer could therefore satisfy its risk retention requirement under the proposed rules by either : (1) “ retaining at least f ive percent of each class of [asset

- backed security] interests issued as part of the securitization transac tion ” ( “ v ertical risk retention ” ) ; (2) “ retaining an ‘ eligible horizontal residual interest ’ in the issuing entity in an amount that is equal to at least five percent of the par value of all [asset

- backed security] interests as part of the securitization t ransaction ” ( “ horizontal risk retention ” ) ; (3) retaining risk through “ an equal combination of vertical risk retention and horizontal risk retention ” ( “ L

- s haped risk retention ” ) ; or (4) retaining risk in accordance with several other approach es not relevan t here

. Id. at JA0187

– 89 (76 Fed. Reg. at 24101

– 03 )

. The vertical risk retention option originally did not specify by what measurement the retention requirement would be satisfied “ because the amount retained [in each class], regardless of method of meas urement, should equal at least five percent of the par value (if any), fair value, and number of shares or units in each class. ” Id. at JA0187 (76 Fed. Reg. at 24101). The initial proposed rule garnered “ comments from over 10,500 persons, institutions, or groups, including nearly 300 unique comment letters. ” Id. at JA 1203, 1208 ( Credit Risk Retention, 78 Fed. Reg. 579 28, 57933 (Sept. 20, 2013) (the “modified proposed rule” ) . The agencies considered these comments, modified the original proposal, and requested comment on6 the modified proposed rule. Id. In issuing these modified proposed rules, the agencies noted that many commenters were concerned about how several of the original proposed rules would affect open market CLOs. Id. at JA 1208 (78 Fed. Reg. at 57933) (“Several commenters criticized application of the original proposal to managers of certain collateralized loan obligation (CLO ) transactions and argued that the original proposal would lead to more concentration in the industry and reduce access to credit for many businesses.”) ; JA1236 (78 Fed. Reg. at 57961 ) (“ Man y commenters, including several participants in CLOs, raised concerns regarding the impact of the proposal on certain types of CLO securitizations, particularly CLOs that are

secu ritizations of commercial loans originated and syndicated by third parties and selected for purchase on the open market by asset managers unaffiliated with the originators of the loans (open market CLOs). ”) . The agencies reaffirmed their interpretation th at “ the CLO manager is a

‘ s ecuritizer ’” under the statute and addressed various definitional concerns raised by the
comments. Id. at JA1236

– 37 (78 Fed. Reg. 57961

– 62 )

. However, in recognizing that “ the standard forms of risk retention in the original pro posal could, if applied to open market CLO managers, result in fewer CLO issuances and less competition in this sector, ” the agencies developed revised risk retention options “ designed to allow meaningful risk retention to be held by a party that has signi ficant control over the underwriting of assets that are typically securitized in CLOs, without causing significant disruption to the CLO market. ” Id. at JA1237 (78 Fed. Reg. at 57962 )

. The modified proposed rules permitt ed securitizers “ to combine the ho rizontal, vertical, and L

- shaped risk retention options into a single risk retention option with a flexible structure

. . . using fair value , determined in accordance with U.S. generally accepted accounting prin ciples

. ” Id. at JA1212 (78 Fed. Reg. at 5793 7 ). In addition, the agencies provided that “an open market CLO could satisfy the risk retention requirement if the firm7 serving as lead arranger for each loan purchased by the CLO were to retain at the origination of the syndicated loan at least [five] p ercent of the face amount of the term loan tranche purchased by the CLO.” Id. a t JA1237 (78 Fed. Reg. at 57962). After review ing the second round of comments on the modified proposed rule , the agencies jointly adopted the final credit risk r etention ru le

. Id. at JA2167 ( Credit Risk Retention, 79 Fed. Reg. 77602 , 77602 (Dec. 24, 2014) (to be codified at 17 C.F.R. pt. 246 and 12 C.F.R. pt.
244

. ) (the “final rule”) ). In adopting the final rule , t he agencies again addressed comments

concern ing the inclusi on of CLO managers under the definition of “ securitizer, ” and reaffirmed their determination that the definition covered CLO managers

. Id. at JA2218

– 20 (79 Fed. Reg.
at 77653

– 55) (“[T]he agencies believe that the interpretation of ‘securitizer’ to include CLO managers is reasonable.”) . The agencies also adopted the use of fair value as a gauge for retained interest in the horizontal risk retention option , but decided in response to comments they received “ not [to] require[ ] vertical interests to be measu red using a fair value measurement framework ” for both pure ly vertical holdings and combined partial vertical interests in a combination holding , because the agencies “were persuaded by commenters that such measurement is not necessary to ensure that the s ponsor has retained [five] percent of the credit risk of the [asset

- backed security] interests issued

. ” Id. at JA2 281 (79 Fed. Reg. at 77716 ). Thus , the final rules implemented (1) a pure ly vertical risk retention option that allows securitizers to retai n the statute’s absolute minimum amount of required risk , (2) the ability to mix and match horizontal and vertical holdings, and (3) an additional “lead arranger” retention option specifically for CLOs. Id. at JA2178, 2216 (79 Fed. Reg. at 77613, 77651). Finally , the agencies concluded that they “ did not believe that it would be appropriate to exempt open market8 CLOs from the risk retention requirement ” and thus declined to create such an exemption or adjustment for them

. Id. at JA2221 (79 Fed. Reg. at 7 7656).
D. Procedural History The plaintiff filed a petition for judicial review of the final rules in the United States Court of Appeals for the District of Columbia Circuit. See Loan Syndications & Trading Ass ’ n v. SEC , 818 F.3d 716, 719 (D.C. Cir. 2016 ). Following a show cause order and oral arguments on the jurisdictional question and merits of the petition, the District of Columbia Circuit determined that it lacked jurisdiction and transferred the case to this Court. 6 Id. The parties have now su bmitted for the Court ’s consider ation the administrative record and the parties ’ appellate briefs as cross - motions for summary judgment. The plaintiff argues that , in violation of the Administrative Procedure Act ( “ APA ” ) , 5 U.S.C. § 706 (2)(A)

– (C), the
ag encies, in their promulgation of the joint credit risk retention rules, arbitrarily and capriciously : ( 1) construed the term “ securitizer ” to include open market CLO managers, ( 2) required securitizers to retain a five percent interest based on fair value instead of “ credit risk, ” and ( 3) declined to “ exercise their exemption authority to permit open market CLO managers to retain credit risk at levels at or above the agencies ’ baseline level. ” Pl.’s Mot., Ex. A (Pet’r’s Br.) at
23

– 25 The defendants conten d in response that none of the plaintiff ’ s arguments have merit

. Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 15. The defendants argue that the statutory language does not exempt open market CLO managers from the definition of “securitizer” as the plaintiff

6 The plaintiff’s petition was filed with the District of Columbia Circuit in November 2014. Unopposed Motion to Expedite Consideration of the Action and to Treat Appellate Briefs as Cross

- Motions f or Summary Judgment (“Mot. to Expedite”) at 2. With the regulations’ compliance deadline in December 2016 looming, briefing at the District of Columbia Circuit was completed in July 2015, and oral arguments were scheduled to be heard seven months later. Mot. to Expedite at 2. The opinion of the District of Columbia Circuit transferring the case to this Court was issued in March of 2016, leaving this Court with only nine months to consider the actual merits of the case before the compliance deadline. Id. ; see also Loan Syndications & T rading Ass’ n , 818 F.3d at 718.9 clai ms, and that the agencies ’ interpretation of “securitizer” is reasonable and entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837 (1984). Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 16

– 17. Next, t he defendant s argue that the agencies ’ approach to prescribing the five percent retention requirement is “ ha rdly unreasonable or irrational ” merely because the agencies may have taken a different approach than those espoused by the plaintiff. Defs. ’ Mot., Ex. A ( Resp ’ts’ Br.) at 18. Finally, the defendants assert that they “ carefully assessed ” the statutory provisions and “ reasonably concluded ” that the

“ relevant considerations ” did not support the plaintiff ’ s proposed exemption or adjustments

. Id.
II. STANDARD OF REVIEW Within the context of the APA , summary judgment is the mechanism for deciding whether an agency action is supported by the administrative record and is otherwise consistent with the APA standard of review as a matter of law

. See, e.g. , Citizens to Preserve Overton Park, Inc. v. Volpe , 401 U.S. 402, 415 (1971). The APA “ sets forth the full extent of judicial authority to review executive agency action for procedural correctness. ” F CC v. Fox Television Stations, Inc. , 556 U.S. 502, 513 (2009). It requires courts to “ hold unlawful and set aside agency action, findings, and conclusions ” that are either “ (A) arbitrary, capricious, an abuse of discretion, or other wise not in accordance with law; (B) contrary to constitutional right, power, privilege, o r immunity; [or] (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right. ” 5 U.S.C. § 706(2)(A)

– (C)

. However, “ [ t]he scope of review under the

‘ arbitrary and capricious ’ standard is narrow and a court is not to sub stitute its judgment for that of the agency. ” Motor Vehicle Mfrs. Ass ’ n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983). Where Congress expressly delegates “ authority to the agency to elucidate a specific provision of the statute by regulation , . . . any ensuing regulation is binding in the courts10 unless procedurally defective, arbitrary or capricious in substance, or manifestly contrary to the
statute. ” United States v. Mead Corp. , 533 U.S. 218 , 227 (2001)

. Nonetheless, the agen cy must

“ examine the relevant data and articulate a satisfactory explanat ion for its action including a

‘ rational connection between the f acts found and the choice made. ’” State Farm , 463 U.S. at 43 (quoting Burlington Truck Lines v. United States , 371 U. S. 156, 168 (1962)). Courts “ will uphold a decision of less t han ideal clarity if the agency ’ s path may reasonably be discerned. ” Pub. Citizen, Inc. v. FAA , 988 F.2d 186, 197 (D.C. Cir. 1 993) (quoting Bowman Transp., Inc. v. Arkansas

– Best Freight Sys., I nc. , 419 U.S. 281, 286 (1974)).
III. ANALYSIS A. Open Market CLO Managers as “ Securitizers ” The plaintiff asserts that the statutory term “ securitizer ” should not i nclude managers of open market CLOs. Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 27. Because the p laintiff ’ s arguments on this issue concern the agencies’ construction of the Dodd

- Frank Act and the reasonableness of the agencies ’ definition, the Court must first determine whether the Chevron framework govern s the Court ’ s analysis

. See Lewis v. Sec’ y o f Navy , __ F. Supp. 3d __, __, Civ. No. 10

- 0842, 2016 WL 3659882, at *4 (D.D.C. 2016) (Walton, J.) (noting generally, “w here agency action turns on questions of statutory interpretation, courts must utilize the two

- step process established in Chevron ” (cit ing Chevron , 467 U.S. at 842) ). The Court concludes that (1) the two

- step test under Chevron is appropriate to apply as a substantive standard for reviewing the agencies ’ construction of the statute ; (2) Congress did not unambiguously foreclose the agenci es ’ construction ; and (3) the agencies ’ construction i s reasonable.11 1. Applicability of the Chevron Framework Generally, claims contesting “an agency’s construction of a statute administered by that agency” warrant application of the two

- step framework adopted in Chevron

. See United States v. Alaska , 503 U.S. 569, 575 (1992). As a threshold determination, a court must consider whether “Congress would expect the agency to be able to speak with the force of law.” Mead , 533 U.S. at 229. Next, a court c onsiders under Chevron step one “ whether Congress has directly spoken to the precise question at issue ,” and “[i]f the intent of Congress is clear, that is the end of the matter.” Chevron , 467 U.S. at 842. But, “if the statute is silent or ambiguous with respect to the specific issue, the question for the court [under Chevron step two] is whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843. In other words, a court must “defer to the agency’s interpretation of t he statute if it is reasonable and consistent with the
statute’s purpose . ” Indep. Ins. Agents of Am., Inc. v. Hawke , 211 F.3d 638, 643 (D.C. Cir. 2000) (citing Nuclear Info. Res. Serv. v. Nuclear Regulatory Comm ’n , 969 F.2d 1169, 1173 (D.C. Cir. 1992) (en banc) ). The plaintiff contends that Chevron is not the appropriate framework to apply in consider ing the agencies’ interpretation of the statutory definition of “securitizer” because

“ Chevron does not apply to agency interpretations of statutes . . . t hat are administered by multiple agencies.” Pl.’s Reply, Ex. A (Reply Brief o f Petitioner (“Pet’r’s Reply ”) at 9 (quoting Benavides v. U.S. Bureau of Prisons , 995 F.2d 269, 272 n.2 (D.C. Cir. 1993)). The defendants respond that “ Chevron deference does ap ply to the resolution of statutory ambiguity contained in joint regulations.” Defs.’ Mot., Ex. A ( Resp’ts’ Br.) at 38 n.15 (citations omitted)

. The Court agrees with the defendants.12 Although it is true that the District of Columbia Circuit recognizes th at “ [ j ] ustifications for deference begin to fall when an agency interprets a statute administered by multiple agencies, ” DeNaples v. Office of Comptroller of Currency , 706 F.3d 481, 487 (D.C. Cir. 2013) (citing Bowen v. Am. Hosp. Ass ’ n , 476 U.S. 610, 642 n .30 (1986)), the plaintiff fails to recognize that the District of Columbia Circuit typically distinguishes between “ generic statutes that apply to dozens of agencies, and for which no agency can claim any particular expertise , ” Collins v. Nat ’l Transp. Sa fety Bd. , 351 F.3d 1246, 1252 (D.C. Cir. 2003) (citations omitted), and “ statutes where expert enforcement agencies have mutually exclusive authority over separate sets of regulated persons , ” i d. at 1253. Central to this distinction and the broader justif ication for Chevron deference is a consideration of whether two bases for presuming implied delegation are present: “ specialized agency expertise and the greater likelihood of achieving a unified view through the agency than through review in multiple cour ts. ” See i d. ; see also Bowen , 476 U.S. at 643 n.30 ( concluding that a single agency ’ s rulemaking did not command deference where twenty

- seven agencies of varying fields of expertise separately “ promulgated regulations forbidding discrimination on the basi s of ” disability in federal programs because the basis of expertise on which Chevron deference is predicated was absent )

. The specter of diminished agency expertise and potentially discordant rules does not loom in th is ca se because the statutory mandat e at issue do es not encourage differing interpretations by various agencies. Rather, t he statute provides that “ the Federal banking agencies and the [SEC] shall jointly prescribe regulations

. ” 15 U.S.C. § 78o

- 11 (b)(1) (emphasis added)

. N othing in the Adm inistrative Record suggests that the agencies did not fulfil l the

c ongressional mandate to jointly adopt uniform rules. See A.R. at JA2167 ( 79 Fed. Reg. at13 77602 ) ( “ The OCC, Board, FDIC, [SEC], FHFA, and HUD . . . are ado pting [this] joint final rule

. . . . ” )

. Because this case presents a situation in which six agencies with overlapping expertise

were explicitly tasked by Congress to jointly draft and adopt regulations as par t of a coordinated endeavor, this Court declines to conclude that Chevron is n ot applicable simply because more than one agency was involved in the rulemaking

. See Individual Reference Servs. Grp., Inc. v.
FTC , 145 F. Supp. 2d 6, 24 (D.D.C. 2001) (holding that where “ the subject matter of the statute falls squarely within the agenc ies ’ areas of expertise, and the Regulations were issued as a result of a statutorily

- coordinated effort among the agencies, Chevron is the governing standard ” ), aff ’ d sub nom. Trans Union LLC v. FTC , 295 F.3d 42 (D.C. Cir. 2002) ; see also New Life Evangel istic Ctr., Inc. v. Sebelius , 753 F. Supp. 2d 103, 122

– 23 (D.D.C. 2010) (holding that

“ where multiple agencies are charged with administering a statute, a single agency ’ s interpretation is generally not entitled to Chevron deference , ” but concluding that “ there would be no comparable concern if all three agencies charged with administering the [statute in question] pressed the same inte rpretation before this Court ” ). Because this case concerns a single, unified rulemaking by six agencies with specialized e xpertise i n the subject matter , the Court concludes that Chevron is the appropriate framework to apply in considering the plaintiff ’ s arguments regarding the agencies’ interpretation of the statutory definition of “securitizer

. ”
Moreover , the Court is per suaded that “Congress would expect the agenc[ies] to be able to speak with the force of law,” Mead , 533 U.S. at 229, because the Dodd

- Frank Act explicitly tasked the agencies to “jointly prescribe regulations,” 15 U.S.C. § 78o

- 11(b)(1). Thus , the threshol d Chevron determination is satisfied, and the Court therefore proceed s to Chevron step

one. See Mead , 533 U.S. at 229.14 2. Chevron Step One Under Chevron step one , the Court must first consider whether Congress clearly intended open market CLO managers t o be excluded from the statute ’ s definition of “ securitizer. ” See 15 U.S.C. § 78o

- 11(a)(3). In applying step one, courts examine the statute ’ s “ text, structure, purpose, and legislative history to determine if the Congress has expressed its intent unambi guously. ” United States Sugar Corp. v. EPA , 830 F.3d 579 , 605 (D.C. Cir. 2016) ( citing Bell Atl. Tel. Co. v. FCC , 131 F.3d 1044, 1047 (D.C. Cir. 1997) )

. Courts must first “ focus on the language of the statute

. ” Bell Atl. , 131 F.3d at 1047. The plaintif f asserts that “ [ c ] onstruing and applying the term ‘ s ecuritizer ’ should have been straightforward , ” Pl.’s Mot., Ex. A (Pet’r’s Br.) at 27, and argues that the agencies “ disregard[ed] the precise statutory language Congress used to define ‘ s ecuritizer , ’” id

. at 29. T he Court is unpersuaded by this argument and concludes that Congress did not unambiguously foreclose CLO managers from inclusion under the statutory definition of “ securitizer

. ”

a. Congress’s Broad Delegation of Authority The statute defines a “ securitizer ” as either “ (A) an iss uer of an asset

- backed security; or (B) a person who organizes and initiates an asset

- back ed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to th e issuer. ” 15 U.S.C. § 78o

- 11(a)(3) . First, the Court notes that “ Congress phrased the relevant provision broadly [ by ] employing [ the ] words . . . ‘ directly or indirectly ’ ” in the second prong of the definition. See Ass ’ n of Private Sector Coll s. & Uni vs . v. Duncan , 681 F.3d 427, 444 (D.C. Cir. 2012) (describing “ directly or indirectly ” as “ extremely broad language ” ) (citing Roma v. United
States , 344 F.3d 352, 360 (3d Cir. 2003) ) . Second , the definition ’ s scope is not necessarily restrict ive because C ongress employed the disjunctive “ or ” in join ing both the (A) and (B)15 prongs of the statutory definition

. See, e.g. , Sabre, Inc. v. Dep ’ t of Transp. , 429 F.3d 1113, 1122 (D.C. Cir. 2005) ( “ Congress ’ s use of ‘ principal ’ and ‘ agent ’ in the disjunctive does not necessarily indicate that Congress intended to limit the broad applicability of the two words.

. . . [T]he Department could permissibly identify an independent [computer reservation system] as a ‘ principal or agent ’ in the broad sense of a travel inte rmediary. ” ). Third, the Court notes that Congress explicitly exempted certain institutions and programs from the credit risk retention requirement, see § 78o

- 11(e)(3)

– (4) (exempting loans supervised by the Farm Credit Administration, mortgages insured or guaranteed by the government, and qualified residential mortgages) ; if Congress had not intended for open market CLO managers to be defined as “securitizers” under the statute, it could have also included them in the list of exempted institutions and progr ams, see, e.g. , Monongahela Power Co. v. Marsh , 809 F.2d 41, 49 (D.C. Cir. 1987) (stating that the omission of hydroelectric plants from the list of facilities exempted from certain administrative requirements suggests that Congress intended that the requi rements would apply to hydroelectric plants). Congress’s use of the phrase “directly or indirectly,” its use of the word “or” as the connector of the definition’s two prongs , and the failure to include open market CLO managers as an exempted class indicat e that the statutory definition of

“ securitizer ” was not unambiguously intended to exclude open market CLO managers from credit risk retention

. In the absence of statutory clarity , “ the court may be forced to look to the general purpose of Congress in enac ting the statute and to its legislative history for helpful cues. ” United States v. Braxtonbrown

– Smith , 278 F.3d 1348, 1352 (D.C. Cir. 2002). In addition , the Court recognizes that “ [i]t is a ‘ fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme. ’”16 FDA v. Brown & Williamson Tobacco Corp. , 529 U.S. 120, 133 (2000) (quoting Davis v. Michigan Dept. of Treasury , 489 U.S. 803, 809 (1989)). The pla intiff’s assertion that Congress was principally concerned with abuses in the “originate

- to

- distribute” model , and thus not with open market CLOs , Pl.’s Mot., Ex. A (Pet’r’s Br.) at 37, is under

- inclusive in light of the overall context and legislative his tory, which support the view that Congress intended to broadly delegate the task of regulation in this complex market to the expert agencies. Cf. Nat ’ l Ass ’ n o f Regulatory Util. Comm ’ rs v. FCC , 525 F.2d 630, 636 (D.C. Cir. 1976)

. The relevant Senate Repo rt that accompanies the pertinent provision of the Dodd

- Frank Act expresses Congress ’ s intent to address the “ [c]omplexity and opacity in securitization markets [that] created the conditions that allowed the financial shock from the subprime mortgage secto r to spread into a global financial crisis. ” S. Rep. No. 111

- 176 , at 128 (2010). The fact that Congress delegated to the agencies the responsibility to “ recognize differences . . . [an d] make appropriate adjustments ” to advance the legislative goals, id. at 130, rather than delineate specifics in the legislation itself, support s the view that Congress was primarily focused on ensuring that certain actors in the securitization market had “ skin in the
game , ” id. at 129, but did not itself desire to tackle t he precise complexities of the market
I nstead, Congress “expect[ed] that these regulations will recognize differences in the assets securitized, in existing risk management practices,

. . . and that regulators will make appropriate adjustments to the amou nt of risk retention required,” id. at 130

. b. The Definitions of “Securi tizer” and “Sponsor” The noted similarity between the second prong of the definition of “securitizer” and the
SEC ’ s pre - existing regulatory definition of a “sponsor” bolsters the Cou rt’s conclusion that Congress intended to broadly delegate rule making authority to the agencies

. The statute17 provides that a securitizer can be “ a person who organizes and initiates an asset

- backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issu er . ” § 78o

- 11(a)(3)(B) (emphasis added). Preexisting asset

- backed securities regulations state that: “ Sponsor means the person who organizes and initiates an asset

- backed securiti es transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuing entity

. ” 17 C.F.R. § 229.1101 (emphasis added). These two phrases are not merely substantially sim ilar, but virtually identical . The similitude here reinforces the Court’s conclusion that Congress did not unambiguously intend to exclude open market CLO managers from the definition of “securitizer” because Congress not only approved of the agencies’ previous decisions to construe the term “sponsor” broadly, but also chose to incorporate the agencies’ broad definition of “sponsor” into the statutory definition of “securitizer.”

c. The Term “Transfer” Much of the parties ’ arguments regarding “ securitizer ” focus on how this Court sho uld construe the term “ transfer ” in the statutory definition of “ securitizer , ” which includes “ a person who initiates an asset

- backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, t o the issuer. ” 15 U.S.C. § 78o

- 11(a)(3)(B ) (emphasis added) . The plaintiff essentially posits that the word “ transfer ” by definition requires that the actor have “ initial ownership or possession ” over the thing being transferred. Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 32. The plaintiff therefore argues that “ securitizer ” cannot apply to an open market CLO manager bec ause the manager only “ acts as the agent of the CLO, selecting the loans on behalf of the CLO and investors [,] and implementing the CLO ’ s purch ase pursuant to a power of attorney , ” id. at 31, and “ controls the asset after the CLO purchases it ” without any18 “ initial ownership or possession , ” i d. at 32. The defendants respond that the plaintiff ’ s interpretation of “transfer” is “ unnaturally narrow ” and “ would lead to an unstated and unwarranted exemption for open market CLOs. ” Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 16. Both parties cite to various dictionary definitions to support their respective interpretations. See Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br. ) at 33

– 34; Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 22.
T he Court finds the plaintiff ’ s focus on the alleged possessory requirement of the term

“ transfer ” misplaced. First, the plaintiff ’ s assertion fails to take into account the relationship between the p hrase “ selling or transferring assets ” and the phrase “ either directly or indirectly ,” which Congress placed in the statute immediately thereafter. See 15 U.S.C. § 78o

- 11(a)(3)(B). The Court believe s that the concept of an “ indirect transfer ” divest s the statutory term “ transfer ” of any necessary or preexisting possessory or ownership element , even if such an element were required under the plain meaning of the word “ transfer

. ” Cf. Mediate possession , Black’s Law Dictionary (10th ed. 2014) (defining medi ate or indirect possession as “[p]ossession of a thing through someone else, such as an agent”). 7 Second, the Court agrees with the defendants that Congress would be unlikely to “ engage[ ] in a high

- stakes game of hide

- and

- seek ” with the agencies if it wa nted to specifically exempt managers of open market CLOs from an otherwise broad statutory definition of “securitizer

. ” NACS v. Bd. o f Governors of Fed. Reserve Sys. , 746 F.3d 474, 494 (D.C. Cir. 2014) ( citing Whitman v. Am

. Trucking Ass ’ns , 531 U.S. 457, 468 (2001 ) ) , cert. denied , ___ U.S. ___, 135 S. Ct. 1170 (2015) . The Court rejects the notion that it
may read a particular exemption in to a contextually broad statute based merely upon the

7 The Court also recognizes that Congress expressly not ed that “securitizers” are “defined as those who issue, organize, or initiate asset

- backed securities. ” See S. Rep. No. 111

- 176 , at 128 ( emphasis added). Because Congress did not mention the word “transfer” or emphasize a direct possessory or ownership requirement when it explained this term, this provides further support that Congress did not intend to specifically exempt open market CLO managers from the definition of securitizer simply because these managers do not have “initial ownership or possession” over the asset being transferred. See Pl.’s Mot., Ex. A (Pet’r’s Br.) at 32.19 contested definition of a single word

. See Whitman , 531 U.S. at 468 ( “ Congress . . . does
not

. . . hide elephants in mouseholes

. ” )

. The foregoing reason ing convince s the Court that Congress did not unambiguously foreclose the agencies from including open market CLO managers within the statutory definition of “ securi tizer

. ” See Vill. of Barrington, Ill. v. Surface Transp. Bd. , 636 F.3d 650, 660 (D.C. Cir. 2011) (determining that where a “ statutory ambiguity has left the agency with a range of possibilities and [ ] the agency ’ s interpretation falls within that range, ” Chevron ’ s first step has been met). Accordingly, Chevron step one has been satisfied here because the statute is silent or ambiguous with respect to whether the term “securitizer” include s open market CLO managers

. See Chevron , 467 U.S. at 843. 3. Chev ron Step Two The defendants encourage the Court to defer to the agencies ’ interpretation of

“ securitizer ” as including open market CLO managers. Where, as in this case, it cannot be shown that Congress “ unambiguously foreclosed the agency ’ s construction of [a] statute, ” courts
must “ defer to the agency provided its construction is reasonable. ” Cablevision Sys. Corp. v.
FCC , 649 F.3d 695, 704 (D.C. Cir. 2011) (citing Nat’l Cable & Telecoms. Ass’n v. Brand X
Internet Servs. , 545 U.S. 967, 980 (2005)

. Agen cy constructions must also be “ consistent with the statutory purpose and legislative history. ” Bell Atl. , 131 F.3d at 1049. Interpretations that

“ diverge[ ] from any realistic meaning of the statute ” wi ll not be upheld. Massachusetts v. Dep ’ t of Transp. , 93 F.3d 890, 893 (D.C. Cir. 1996). However, “ the whole point of Chevron is to leave the discretion provided by the ambiguities of a statute with the implementing agency. ” Nat ’ l Cable & Telecoms. Ass ’ n , 545 U.S. at 981 (quoting Smiley v. Citibank (South Dakota), N.A. , 517 U.S. 735, 742 (1996))

. Deference is due to such agency determinations not only because20 “ Congress

. . . delegated law

- making authority to the agency , but also because that agency has the expertise to produce a reasoned decision. ” Vill. of Barrington , 636 F.3d at 660 (citing Chevron , 467 U.S. at 844

– 45 ) . Failure to exercise “ that expertise

— for example, by simply picking a permissible interpretation out of a hat ”

— require s that no deference be given

. Id. Using once more the “ traditional tools of statutory construction , ” Chevron , 4 67 U.S. at 843 n. 9, and considering only the rationales actually deployed by the agency before the onset of judicial review, Bowen v. Georgetown Univ. Hosp. , 488 U.S. 204, 212 (1988) ( declin ing to “ defer [] to

an agency counsel’ s interpretation of a statute where the agency itself has articulated no position on the question ”) , a court must determine whether the agency ’ s interpretation is “ rationally related to the goals ” of the statutory provision, AT & T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 , 388 (1999).

a. Rational Relationship to Legislative Goals In the final rule , the agencies concluded that including open market CLO s under the risk retention requirements advanced Congress ’ s legislative objectives because CLOs are a type of [collateralized debt obligation] . Both are organized and initiated by an asset manager that also actively manages the assets for a period of time after closing in compliance with investment guidelines. Typically, both CLOs and [collate ralized debt obligations] are characterized by relatively simple sequential pay capital structures and significant participation by key investors in the negotiation of investment guidelines. A.R. at JA2215 (79 Fed. Reg. at 77650). The agencies observed t hat “ CLO issuance has been increasing in recent years , ” and “ [h]eightened activity in the leveraged loan market has been driven by search for yield and a corresponding increase in risk appetite by investors. ” Id. The agencies deduced from findings of inc reased activity in the leveraged loan market that have parallel ed a rise in the “ widespread loosening of underwriting standards , ” id. , that “ these developments . . . represent similar dynamics to issues in the originate

- to

- distribute model that21 we re a majo r factor in the recent financial crisis and that [ 15 U.S.C. § 78o

- 11 ] was intended to address , ” id. at JA2215

– 16 (79 Fed. Reg. at 77650

– 51). T he agencies also considered that

“ CLOs are organized and initiated by a CLO manager , ” who “ will usually have s ole discretion

. . . to select portions of tranches of syndicated commercial loans on the primary or secondary market to be acquired by the CLO in compliance with the investment guidelines. ” Id. at JA2215 (79 Fed. Reg. at 77650). The agencies also acknowled ged that al though a special purpose vehicle does the actual work of packaging the loans into the CLO , “ [t]he CLO manager retains the obligation to actively manage the asset portfolio, in accordance with the investment guidelines, and earns management fees and performance fees ” in return for the services provided. Id. These considerations led to the agencies ’ reasonable conclusion that the open market CLO manager is a n applicable “ securitizer ” under the statute “ because [the manager] selects the commerci al loans to be purchased by the CLO issuing entity for inclusion in the CLO collateral pool, and then manages the securitized assets once deposited in the CLO structure. ” Id. at JA1237 (78 Fed. Reg. at 57962). The agencies justified their interpretation under the second
pro ng of the statutory definition

— “ a person who organizes and initiates an asset

- backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer

. ” Id. (citing 1 5 U.S.C. § 78o

- 11(a)(3)). According to the agencies ’ reasoning, this type of manager sufficiently “ organizes and initiates ” and “ indirectly transfers ” in accordance with the statutory text to be included under the credit risk retention rules because the m anager controls the formation of the collateral pool, which the agencies considered

“ the essential aspect of the securitization transaction. ” Id. The agencies further justified their choice in remarking that both the statutory text and the legislative hi story of the Dodd

- Frank Act22 support their interpretation because open market CLO managers “ are the parties who determine the credit risk profile of securitized assets in many types of securitization transactions and therefore should be subject to a regulat ory incentive to monitor the quality of the assets they cause to be transferred to an issuing entity. ” Id. Finally, the agencies expressed significant concern that failure to apply the credit risk retention rule to the controlling managers and instead
ap plying i t to an entity like the special purpose vehicle c ould create a loophole through which

“ sponsors ”

— as securitizers under the statute

— could “ evade risk retention by hiring a third

- party manager to ‘ s elect ’ assets for purchase by the issuing entity tha t have been preapproved by the
sponsor. ” Id. at JA2220 (79 Fed. Reg. at 77655). This situation, according to the agencies, could “ result in a situation in which no party to a securitization can be found to be a ‘ securitizer ’ because the party that organi zes the transaction and has the most influence over the quality of the securitized assets could avoid legally owning or possessing the assets. ” Id. In affording the agencies deference under Chevron , the Court concludes that the agencies ’ interpretation s and justifications are not “ plainly erroneous or inconsistent ” with the statutory definition at issue here , and thus merit “controlling weight

. ” Banner Health v. Sebelius , 715 F. Supp. 2d 142, 154 (D.D.C. 2010) (Walton, J.) ( quo ting Thomas Jefferson Uni v. v. Shalala , 512 U.S. 504, 512 (1994) ; Presbyterian Med. Ctr. of Univ. of Pa. Health Sys. v. Shalala , 170 F.3d 1146, 1150 (D.C.Cir.1999) ). T he agencies engaged in deliberate and reasonable effort s to identify both the securitization structures aptly tar geted by the statute and the key players with in those structures to who m it would be most effective to permissibly target the credit risk retention requirements in order to fulfil l the statute ’ s mandate

. Alt hough the plaintiff contends that the note

- issui ng entity of the asset

- backed security is an appropriate alternative to bear risk because “ that entity has a board and in particular equity holders sensitive to risk and able to23 address it through the actions of managers , ” Pl. ’ s Reply, Ex. A (Pet ’ r ’ s Reply ) at 4

– 5 , t he Court accept s the agencies ’ reasonable conclusion s

— as reflected in the administrative record

— that open market CLOs present an appropriate structure to apply the credit risk retention rules, and the managers of these securitizations are reason ably defined as “ securitizers ” as a result of their indirect efforts to transfer or sell assets by directing and structuring the composition of the CLO.
See Bell Atl. , 131 F.3d at 1050 ( affording deference to agency interpretations that were “reasonable a nd consistent with the statute’ s history and purpose”). Having found the statutory definition susceptible to ambiguity, the Court must agree with the defendants that the decision to interpret the term “ securitizers ” to include open market CLO managers is reasonable and thus entitled to deference.
b. Whether the Agencies’ Definition of the Second Prong of Securitizer Renders the First Prong Mere Surplusage The plaintiff argues that the agencies ’ interpretation of securitizer nevertheless “ excised th e first prong of the [ statutory ] definition ,” Pl.’s Mot., Ex. A (Pet’r’s Br.) at 28 , i.e., “ an issu er of an asset

- backed security , ” 15 U.S.C. § 78o

- 11(a)(3)(A), by effectively “ declining to separately define ‘issuer , ’” Pl.’s Mot., Ex. A (Pet’r’s Br.) at 28, when the agencies adopt ed a broad definition for the second prong, i.e., “ a person who organizes and initiates an asset

- back ed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer, ” 15 U .S.C. § 78o

- 11(a)(3) (B) . The plaintif f allege s agency error in the decision to equate the pre

- existing regulatory definition of “ sponsor ” with the second prong of the definition of securitizer because the agencies subsequently “ concluded that the breadth of their new definition of ‘ s ponsor ’ eliminated any need to construe or apply [the term]

‘ issuer. ’” Pl.’s Mot., Ex. A (Pet’r’s Br.) at 28

– 29. This action, the plaintiff contends, treats significant stat utory language as mere surplusage

. Id. at 29. T he defendants counter that “[ w ] ho24 qualif ies as an ‘ issuer ’ [ under the first prong ] has no bearing on whether [ the open market ] CLO
manager [ s ]” at issue qualify as securitizers under the second prong . Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 28. Further, the d efendants argue that Congress’s insertion of the disjunctive “ or ” between the two prongs permitted the agencies “ to impose the requirement on any party that satisfies one of the two prongs. ” Id. The defendants also note that the agencies did, in fact, de fine “issuer” in accordance “ with how that term . . . has been defined and used under the federal securities laws in connection with asset

- backed securities .” Id. at 33. The Court agrees with the defendants on this issue

. Certainly, courts should be

“ rel uctan[t] to treat statutory ter ms as surplusage ” in any setting. Babbitt v . Sweet Home Chapter, Cmty s . for Great Ore. , 515 U.S. 687, 698 (1995). The plaintiff cites Bailey v. United
States , 516 U.S. 137 (1995), superseded by statute as stated in Welch v. United States , ___ U.S.

___, ___, 136 S. Ct. 1257, 1267 (2016), to reinforce its argument that the breadth of the agencies ’ “ sponsor ” interpretation of the second prong impermissibly leaves “ no role ” for the first prong. Pl. ’ s Reply, Ex. A (Pet ’ r ’ s Reply ) at 5 (citing Bailey , 516 U.S. at 145 )

. In Bailey , the Supreme Court considered how to interpret the word “use” in a criminal provision imposing specific penalties on those who “use[ ] or carr[y] a firearm” while committing a crime of violence or drug tr afficking offense

. 516 U.S. at 142

– 43. The Supreme Court concluded “that
‘use’ must connote more than mere possession of a firearm by a person who commits a drug offense ,” but reasoned that if Congress had intended a broader conception of “possession” to trigger the statute’s liability, “ it easily could have so provided .” Id. at 143. More recent Supreme Court decisions addressing statutory interpretations in the regulatory context instruct
courts to “ be guided to a degree by common sense as to the manne r in which Congress ” might delegate large regulatory decisi ons to an administrative agency. Brown & Williamson Tobacco25 Corp. , 529 U.S. at 133

. Indeed, C ongress is known to draft provisions that may “ appear duplicative of others ” in order to “ make assuran ce double sure, ” Shook v. D.C. Fin. Responsibility & Mgmt. Assistance Auth

. , 132 F.3d 775, 782 (D.C. Cir. 1998) (internal quotation marks omitted) , and “ [ i ] n some cases, redundancy may reflect the broad purpose of a congressional statute, ” Nat ’ l Ass ’ n of C lean Water Agencies v. EPA , 734 F.3d 1115, 1126 (D.C. Cir. 2013) (citing Sweet Home , 515 U.S. at 698 n. 11 )

. The agencies did not create impermissible surplusage by including open market CLO managers in their definition of “ securitizer. ” In fact , as the defendants point out, the agencies did define “ issuer ” by construing it to refer to the “ depositor ” of assets into a securitization vehicle because that interpretation is “ consistent with how that term has been defined and used under the federal securities laws in connection with asset

- backed securities. ” Defs.’ Mot., Ex. A (Resp’ts’ Br.) at 33 (citing A.R. at JA2174 (79 Fed. Reg. at 77609) (referencing 17 C.F.R. §§ 230.191 , 24 0.3b

- 19) ) ; cf. Chevron , 467 U.S. at 858 (lending significance to an agency deter mination to construe a term in the statute “ using the same definition ” appearing in preexisting regulations). The agencies’ decision to impose the risk retention obligation requirements on open market CLO managers under the second prong of the definition of “securitizer,” rather than on the issuing entities under the first prong of the definition , is a reasonable exercise of the auth ority Congress delegated to the agencies under the statute, and does not render the first prong of the definition surplusage. See Nat’l Cable & Telecomms. Ass’n , 545 U.S. at 980 (“[A] mbiguiti es in statutes within an agency’ s jurisdiction to administer are delegations of authority to the agency to fill the statutory gap in reasonable fashion. Filling these gaps

. . . involves d ifficult policy choices that agencies are better equipped to make than courts. ” (citing Chevron , 467 U.S. at 865

– 66)).26 Further, Congress made two distinct choices in its phrasing of the definition of

“ securitizer ” that support the defendants ’ position that the agencies were permitted “to impose the requirement on any party that satisfies one of the two prongs

. ” Defs.’ Mot., Ex. A ( Resp’ts’ Br.) at 28

. First, Congress used the term “ or ” to separate the two prongs, which should typically

“ be accepted for it s disjunctive connotation ” absent a ny resulting frustration of legislative intent. Unification Church v. Immigration & Naturalization Serv. , 762 F.2d 10 77, 1084 (D.C. Cir. 1985) (citations omitted) (finding a conjunctive connotation for “or” where the “us ual disjunctive connotation [was] demonstrably at odds with the will of Congress”) . This choice suggests a statutory delegation allowing the agencies to consider whether only one of the statutory prongs required consideration before they made a decision

. See Nw. Airlines , Inc. v. FAA , 14 F.3d 64,
69 (D.C. Cir. 1994) ( “[T] he most natural reading of the statute is the one proposed by the FAA[

— ] that is, by joining the criteria for PFC approval with an “or,” Congress wanted only to ensure that all PFC

- approve d projects furthered one of the three statutory goals. ” )

. O ther “ valid alternative readings ” may exist, as the plaintiff posits , see Pl.’s Mot., Ex. A (Pet’r’s Br.) at 27

– 28, but the Court “ need only ask whether the [ agencies ’ ] interpretation is reasonabl e, ” i d. Second, as previously discussed above , a significant portion of the wording Congress chose is virtually identical to the agencies ’ pre existing regulatory definition of “ sponsor. ” See s upra at 16

– 17

. This phrasing , which cannot represent a mere c oincidence , sufficiently demonstrates that the agencies reasonably infer red that the statutory definition went beyond the narrow reading advanced by the plaintiff. Considering Congress ’ s chosen terms in the statute , the Court cannot say that Congress draf ted § 78o

- 11(a)(3) in a manner that foreclose d the agencies from concluding that their prior “ sponsor ” definition would suffice in interpreting the term

“ securitizer. ” The Court therefore rejects the plaintiff ’ s impermissible surplusage argument

.27 c. Open Market CLO Managers as “Owners” Finally, t he plaintiff argues that retaining risk “ makes no sense and cannot have been intended ” for a manager of an open market CLO because the manager “ does not own or possess any assets [ and ] has no associated credit ri sk to ‘ retain ’ or to part with through a ‘ s ale or transfer. ’” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 32. The Court has already expressed its skepticism regarding this ownership

- focused line of reasoning as applied to the statute. See supra at 17

– 1 9

. Thi s skepticism only increases when the Court considers that open market CLO managers may already receive compensation “ in part based on the performance of managed assets , ” Pl.’s Mot., Ex. A (Pet’r’s Br.) at 13, which “ reflects th e most concentrated credit ri sk, ” id. at 14. In other words, the fact that some CLO managers may receive compen sation based in part on the CLO’s performance shows that private entities recognize the organizational power of the man a ger in building a stable CLO

. Indeed, the agencies n oted in the final rule that because special purpose vehicles and investors in the open market CLO structures do not choose or monitor assets in the CLO itself , it makes less sense for them to retain risk instead of the managers that do select and monitor t he assets

. See A. R. at JA 2219 (79 Fed. Reg. at 77654) (“[T]he CLO manager has sole authority to select the commercial loans to be purchased by the CLO issuing entity for inclusion in the CLO collateral pool, directs the issuing entity to purchase such ass ets in accordance with investment guidelines, and manages the securitized assets once deposited in the CLO structure. ”)

. The plaintiff contends that other entities are more appropriate to bear the risk because they might have “ a board and in particular eq uity holders sensitive to risk and able to address it through the actions of managers

. ” Pl. ’ s Reply, Ex. A (Pet ’ r ’ s Reply) at
4

– 5

. The agencies reasonably determined that these entities were not as aptly positioned to bear the risk , however, because the man a gers exercise a greater degree of control over regular28 transactions and regulating other potential entities would do less to effectuate Congress’s intent in prescribing the credit risk retention mandate

. See A .R. at JA2220 (79 Fed. Reg. at 77655) (“ Li ke other securitization sponsors, a CLO manager is the party best positioned to adequately monitor and assess the risk of the securitized assets. ”). Therefore, the Court defers to the defendants in accordance with Chevron , and concludes that their interpr etation of “securitizer” to include open market CLO managers is reasonable.
B. “ Fair Value ” in Determining Credit Risk Retention The plaintiff ’ s second major assertion is that the agencies failed to appropriately base the risk retention rules on “ credit risk, ” as required by the statute. Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at
38. The statute provides that the “ prescribed regulations [ must ] require any securitizer to retain an economic interest in a portion of the credit risk for any

. . . asset. ” 15 U.S.C. § 78o

- 11 (b)(1) (emphasis added) . In this second assignment of error, the plaintiff argues that because the agencies’ risk retention rules “ requir[e] that securitizers retain

. . . [an] economic or market value ” of the asset, the agencies acted arbitraril y and capriciously in “ construing and implementing the core provision ” of “ credit risk. ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 38

. The
Court find s the plaintiff’s argument unpersuasive

. 1. Reliance on a Factor Precluded from Consideration The plaintiff ur ges the Court to examine whether the agencies ’ use of “ fair value ” as a

measure to assess “ credit risk ” represents a factor the agencies were precluded from considering by Congress. Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 48. The agencies adopted fair value a s a means to

measure asset

- backed security interests retained in accordance with the horizontal risk retention option or partial horizontal holdings in a combination retention option. See A .R. at JA2281 (7929 Fed. Reg. at 77716)

. 8 The defendants argue that their use of fair value is a reasonable way to measure credit risk because the statute does not provide a “ method for assessing credit risk , ” and Congress “ did not dictate how the agencies were to implement ” the regulation. Defs. ’ Mot., Ex. A ( Resp’ts’ B r.) at 17. Certainly, “ if Congress ‘ has directly spoken to the precise question at issue, ’ the court and the agency ‘ must give effect to the unambiguously expressed intent. ’” Agape Church, Inc. v. FCC , 738 F.3d 397, 406 (D.C. Cir. 2013) ( citing Chevron , 467 U.S. at
842

– 43 ). Further, “ reasoned decisionmaking ” requires that “ the agenc[ies] did not rely on factors which Congress did not intend for [them] to consider. ” Pharm . Research & Mfrs. of Am.

v . FTC , 790 F.3d 198, 212 (D.C. Cir. 2015). The Court conc ludes that the agencies ’ use of “ fair value ” to determine the required level of retained interest in the asset

- backed securities does not constitute the impermissible consideration of a factor precluded by Congress . The statute requires the agencies to pr omulgate rules designed to ensure that securitizers “ retain an economic interest in a portion of the credit risk ” in the applicable assets. 15 U.S.C. § 78o

- 11(b)(1). The statute further directs the agencies to require an effective retention of “ not less than [five] percent of the credit risk for any [qualified] asset. ” Id. § 78o

- 11(c)(1)(B). Congress did not define “ c redit risk , ” nor did it provide an express methodology for the agencies t o employ to require securitizers to retain their

“ econo mic intere st in a portion of the credit risk. ” I d. § 78o

- 11 (b)(1); see generally id. § 78o

- 11

. The plaintiff contends that “ fair value ” is an entirely “ different concept than ‘ credit risk , ’ ” and that using what amounts to “ economic or market value as the basis for [the agencies ’ ]

8 Asset

- backed security interests retained in accordance w ith the vertical risk retention option or partial vertical interests under the combined retention option do not require the same fair value framework because the agencies “were persuaded by commenters that such measurement is not necessary to ensure that t he sponsor has retained [five] percent of the credit risk.” A.R. at JA2281 (79 Fed. Reg. at 77716)

.30 rules produces results wildly at odds with the statutory direction. ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.)
at 40. T he legislative history , however, indicates that Congress intended for securitizers to retain

a “ material amount of risk ” suffici ent to ensure that securitizers “ align [] their economic interest with those of investors. ” S. Rep. No. 111

- 176 , at 129. In light of the statute ’ s imprecisi on and Congress’s broad objective , t he Court agrees with the defendants that “ Congress did not prov ide any direction as to how the agencies were to ensure securitizers retain [five] percent exposure to the credit risk. ” Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 44. Although it is true that “ an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, ” State Farm , 463 U.S. at 43 , c ourts must be reluctant “ to infer from congressional silence an intention to preclude the agency from considering factors other than those listed in a statute , ” Nat’l Ass’ n of Clean Air Agencies v. EPA , 489 F.3d 1221, 1230 (D.C. Cir. 2007) (citing George E. Warren Corp v. EPA , 159 F.3d 616, 623 (D.C. Cir. 1998) )

. Because this statute contains no “ clear congressional direction to the contrary, [ the Court ] will n ot deprive the agenc[ies] of the power to fine

- tune [their] regulations

. ” Int ’ l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. United States , 735 F.2d 1525, 1529 (D.C. Cir. 1984)

. Thus, the Court concludes that t he agencies’ use of fair value was not precluded by Congress. 2. Reasoned Explanation for the Use of Fair Value
T he plaintiff claims that the agencies “ never articulate[d] why fair value served as a valid proxy for credit risk , ” Pl.’s Mot., Ex. A (Pet’r’s Br.) at 48, and failed to address concerns o ver the potential difference in required economic retention between the agencies’ adopted fair value
measurements and the plaintiff’s conception of “ credit risk , ” i d. at 4 9

– 50

. In considering these position s, the Court “ retain[s] a ro le, and an important one, in ensuring that agencies have engaged in reasoned decisionmaking. ” Judulang v. Holder , ___ U.S. ___, ___, 132 S. Ct. 476,31 483

– 84 (2011). “ [R]easoned decisionmaking ” requires that agencies promulgate rules “ in observance of proc edures required by law

. ” Pharm. Research , 790 F.3d at 212. Agencies must provide reasoned explanations for their actions, see Fox Television Stations, Inc. , 556 U.S. at 515, and must base their decisions on a consideration of the relevant factors , see St ate Farm , 463 U.S. at 43. The Court cannot supply a reasoned basis for the agency ’ s action that the agency itself has not provided , but may “ uphold a decision of less than ideal clarity if the agency ’ s path may be reasonably discerned. ” Id. ( internal quo tation marks and citations omitted ). The agencies’ final rules adopted “ a minimum [five] percent base risk retention requirement to all securitization transactions ” within the scope of the statute. A.R. at JA2172 (79 Fed. Reg. at 77607). As the agenci es described it: The final rule also allows a sponsor to satisfy its risk retention obligation by retaining an eligible vertical interest, an eligible horizontal residual interest, or any combination thereof as long as the amount of the eligible vertical i nterest and the amount of the eligible horizontal residual interest combined is no less than [five] percent. The amount of the eligible vertical interest is equal to the percentage of each class of [asset

- backed security] interests issued in the securitiza tion transaction held by the sponsor as eligible vertical risk retention. The amount of eligible horizontal residual interest is equal to the fair value of the eligible horizontal residual interest divided by the fair value of all [asset

- backed security ] i nterests issued in the securitization transaction

. Id. at JA 2172 (79 Fed. Reg. 77607 )

. The plaintiff notes, and the defendants agree, that “ a purely

‘ vertical ’ holding . . . amounts to retention of [five] percent of credit risk [ ] because holding a
pro rata [proportional] share of all the securities . . . ensures a pro rata [proportional] holding of the total credit risk of the underlying asset s. ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 40 ; see also Defs .’ Mot., Ex. A ( Resp’ts’ Br.) at 39

– 40

. Therefore, it is undisputed that the pure vertical option for risk retention reasonably satisfies the statute ’ s minimum requirement

— an effective retention of five percent of the securitization ’ s credit risk

— regardless of any overarching consideration of the entire secur itization’s “ fair value. ” See 15 U.S.C. § 78o

- 11(c)(1)(B).32 The question for the Court is whether , in deciding to use fair value to measure horizontal risk retention, the agencies failed to “ articulate a satisfactory explanation for [their] action ” or

es tablish “ a rational connection between the facts found and choices made. ” State Farm , 463
U.S. at 43 (quoting Burlington Truck Lines , 371 U.S. at 168)

. The agencies have not failed in this regard

. In the midst of the rulemaking, the SEC explained its re asoning for the use of fair value in the modified proposed rules: The [SEC] believes that [requiring sponsors to measure horizontal risk retention using a fair value framework] would align the measurement more closely with the economics of a securitizati on transaction because market valuations more precisely reflect the securitizer ’ s underlying economic exposure to borrower default. Defining a fair value framework also may enhance comparability across different securitizations and provide greater clarity and transparency. A.R. at JA1285 (78 Fed. Reg. at 58010). Further, the agencies rea son ed that a fair value framework “ uses methods more consistent with market practices. ” Id. at JA1213 (78 Fed. Reg.
at 57938). The a dministrative r ecord show s that, cont rary to the plaintiff’s assertions , the agencies did articulate their reasoning for using fair value to measure horizontal risk retention in the final rule : [T]o provide greater clarity for the measurement of risk retention and to help prevent sponsors fro m structuring around their risk retention requirement by negating or reducing the economic exposure they are required to maintain, the agencies proposed to require sponsors to measure their risk retention requirement using fair valuation methodologies acce ptable under [generally accepted accounting principles]

. . . . [T]he agencies are adopting a fair value framework substantially similar to the reproposal for calculating eligible horizontal residual interests in the final rule . . .

. [T]his measurement uses methods consistent with valuation methodologies familiar to market participants and provides a consistent framework for calculating residual risk retention across different securitization transactions. It also takes into account various economic fact ors that may affect the securitization transaction, which should aid investors in assessing the degree to which a sponsor is exposed to the risk of the securiti zed assets. A.R. at JA2181 (79 Fed. Reg. at 77616).33 T he Court concludes from the foregoing e xplanation that the agencies acted appropriately because “ the choices made by the [agency] were reasonable and supported by the record. ” Am. Trucking Ass ’ ns v. EPA , 283 F.3d 355, 362 (D.C. Cir. 2002) (quoting Lead Indus. Ass’n v. EPA , 647 F.2d 1130, 1160 (D.C. Cir. 1980)) . The agencies reasonably concluded during the rulemaking that using fair value as a means to measure horizontal risk retention provided the agencies with a valid means to ensure consistency across different types of secured transactions , provided regulated parties with a familiar methodology to assist investors with assessing risk , and adequately ensured exposure to credit risk in accordance with the statute. See A.R. at
JA 2181 (79 Fed. Reg. at 77616). These reasons are tied to the purp oses of the statute and the

“ appropriate operation of ” the relevant financial system , s ee Judulang , ___ U.S. at ___, 132 S. Ct. at 485, and t he Court can “reasonably . . . discern[ ] ” the path of the agencies’ decisionmaking, State Farm , 463 U.S. at 43 (quo ting Bowman , 419 U.S. at 286). The

a dministrative r ecord does not reflect , nor can the plaintiff show , that the agencies failed to explain why fair value considerations were implemented , see Black Oak Energy, LLC v. FERC , 725 F.3d 230, 24 3

– 4 4 (D.C. Cir. 2 013) (holding that the Federal Energy Regulatory Commission’s orders requiring the regional transmission organization to recoup funds were arbitrary and capricious because the Commission failed to explain why recouping funds was warranted) , or that the age ncies ’ considerations for how to measure credit risk were inconsistent,

see Bus. Roundtable v. SEC , 647 F.3d 1144, 1153

– 54 (D.C. Cir. 2011) (holding that the SEC’s “discussion of the estimated frequency of [shareholder director] nominations under [its rule wa]s internally inconsistent and therefore arbitrary”)

. Given that deference to agency decisionmaking is substantial where predictive judgments and expert assessments come into play, the Court
“cannot ‘ substitute [ its ] judgment for the agenc[ies’], espec ially when, as here, the decision34 under review requires expert policy judgment of a technical, complex, and dynamic subject. ’ ” Agape Church, Inc. , 738 F.3d at 408 (quoting Cablevision Sys. Corp. v. FCC , 597 F.3d 1306, 1311 (D.C. Cir. 2010) )

. 3. The Diffe rence Between Pure Vertical and Pure Horizontal Options
T he plaintiff devotes much of its brief to emphasizing the perceived economic difference
in risk retention between the minimal credit risk held by securitizers electing to use a pure vertical option and the high er effective credit and economic risk held by those who ch oose the pure horizontal option as evidence that the agencies’ use of fair value was arbitrary and capricious. Pl.’s Mot., Ex. A (Pet’r’s Br.) at 40

– 47

. T he agencies , however, ad equate ly addressed this difference in the a dministrative r ecord. T he agencies acknowledged throughout the rulemaking that the horizontal option was “ most exposed to credit risk , ” A.R. at JA1287 (78 Fed. Reg. at 58012), and would “ impose the most economic risk o n a sponsor , ” id. at JA1215 (78 Fed. Reg. at 57940). But the agencies highlighted several reasons during the rulemaking why a horizontal holding of some kind might be desirable, despite the increased risk retention

. See,

e .g. , id. at JA1288 (78 Fed. Reg. at 58013) (noting in the modified proposed rule that choosing a horizontal option may “ signal to the market that the sponsor ’ s incentives are better aligned with investors ’ [incentives] ” ); id. at JA2284 (79 Fed. Reg. at 77719) (reiterating in the final ru le that the horizontal option “ signals to investors that the information about the asset portfolio being securitized is accurately represented and fairly priced , ” which might “ improve investor participation and lead to enhanced capital formation ” ).
Moreov er , the agencies specifically “provide[d] for a combined standard risk retention option that would permit a sponsor to satisfy its risk retention obligation by retaining an ‘eligible vertical interest,’ an ‘eligible horizontal residual interest,’ or any co mbination thereof,” while35 leaving the pure vertical holding as the baseline five percent credit risk reten tion requirement, id. at JA1212 (78 Fed. Reg. at 57937), so long as the risk retention comports with the statutorily required retention of “ not less t han [five] percent of the credit risk , ” 15 U.S.C. § 78o

- 11(c)(1)(B)(i). Because the statute expressly allows for credit risk retention of more than five percent, the mere fact that alternate options available to securitizers might require higher effective credit risk retention does not defeat the agencies ’ reasoning. Even if attempting to gain the benefits of both the low

- retention vertical option and the high

- clarity horizontal option through a hybridized retention plan “ present [ s ] a conceptual difficult y , ” as the plaintiff asserts , Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 42, nothing in the rules prevents regulated parties from selecting the simpler pure ly vertical or pure ly horizontal options. It may be the case that some securitizers will find using a parti al or pure horizontal holding “an unattractive solution to all their ‘problems[,] ’ [b]ut that does not mean that the availability of this option does not increase [their] flexibility.” Melcher v. FCC , 134 F.3d 1143, 1159 (D.C. Cir. 1998). Consequently , t he plaintiff’s invocation of the difference between the pure risk retention options to show that the agencies acted in an arbitrary and capricious manner is without merit. 4. The Agencies’ Alleged Failure to Address Comments The plaintiff further alleges that the agencies failed to address the concerns of a subset of

com menters who sought “ to have the agencies have the requirement focus on retention of credit risk, not economic value. ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 49

– 50. Indeed, failure to address issues raised in comments may require a finding that the agencies acted in violation of the APA by “ fail[ing] ‘ to consider an important aspect of the problem. ’ ” See Fox Television St ations, Inc.
v. FCC , 280 F.3d 1027, 1051 (D.C. Cir. 2002) (quoting State Farm , 463 U.S. at 43). In responding to comments, “ an agency must consider only ‘ significant and viable ’ and ‘ obvious ’36 alternatives. ” Nat ’ l Shooting Sports Found., Inc. v. Jones , 716 F. 3d 200, 215 (D.C. Cir. 2013) (quoting City of Brookings Mun. Tel. Co . v. FCC , 822 F.2d 1153, 1169 (D.C. Cir. 1987))

. Agencies “ need not address every comment, but [they] must respond in a reasoned manner to those that raise significant problems. ” Covad Commc ’ ns Co. v. FCC , 450 F.3d 528, 550 (D.C. Cir. 2006) ( internal quo tation marks and citations omitted ). The plaintiff cites various comments attack ing the agencies ’ usage of fair value on the base s that the agencies failed to properly interpret the statute, that the implementation in horizontal holdings “ made no sense ” d ue to the nature of possible losses, that the difference between the pure vertical and horizontal options was too dramatic, and that “ the horizontal interest should be reduced to have the sponsor retain credit risk close to [ five ] percent. ” Pl. ’ s Mot., Ex . A (Pet ’ r ’ s Br.) at 43 (citing A.R. at JA0787 (American Bar Association), JA1016 (American Bankers ’ Association), JA1713 (Structured Finance Industry Group), JA1438

– 39 (Bank of America), JA1141

– 50 ( Loan Syndications and Trading Association )). The plainti ff alleges that the agencies continually “ sidestepped the central issue ” of using fair value as a proxy for credit risk and failed to squarely address the concerns of these comments. Id. at 45. The Court disagrees. The agencies essentially addressed t hese comments by noting in the final rule that commenters questioned the use of fair value in several contexts

. See A.R. at JA2171

– 72 (79 Fed. Reg. at 77606) ( after noting that “a significant number of commenters commented on the agencies’ use of fair val ue to measure risk retention ,” the agencies reiterated that the final rule would use fair value as a gauge for retained interest in the horizontal risk retention option ); id. at JA2181 (79 Fed. Reg. at 77616 ) ( after summarizing various comments concerning “ specific accounting concerns regarding the use of fair value to measure risk re tention, ” the agencies37 stated that they were adopting a fair value framework “us[ing] methods consistent with valuation methodologies familiar to market participants and provid [ing] a consistent framework for calculating residual risk retention across different securitization transactions” )

. Even though the agencies did not necessarily address each and every concern raised by these comments, “ [t]he failure to respond to commen ts is significant only insofar as it demonstrates that the agency ’ s decision was not based on a consideration of the relevant factors. ” Covad , 450 F.3d at 550 (quoting Thompson v. Clark , 741 F.2d 401, 409 (D.C. Cir

. 1984) ) . As already recognized by the
C ourt, the agencies repeatedly justified their reasonable use of fair value. See supra at 30

– 3 3

. The agencies explained their decision to use fair value at multiple points in the rulemaking
process , including after noting in the final rule that “[c] omment ers expressed several specific accounting concerns regarding the use of fair value to measure risk retention. ” A.R. at JA 2181 (79 Fed. Reg. at 77616). “T his response demonstrates that the agenc [ ies] considered and rejected [the plaintiff ’ s] arguments

. . . . This is all the APA requires. ” City of Waukesha v.
EPA , 320 F.3d 228, 258 (D.C. Cir. 2003). In other words, t he comments present ed nothing that

“ required some explanation beyond that already contained within the rulemaking record to assure [the Cou rt] that ‘ all relevant factors ha[d] been considered. ’” Thompson , 741 F.2d at 409

– 10 (quoting Home Box Office, Inc. v. FCC , 567 F.2d 9, 36 (D.C. Cir. 1977) )

. 5. The Difference Between the Vertical Option and the Combination Options
T he plaintiff points to Nat iona l Mining Ass ’ n v. Army Corp s of Eng inee rs , 145 F.3d 1399, 1407 (D.C. Cir. 1998) , as support f or its argument that “ [ t ] he agencies ’ baseline rule permits any of an infinite number of combinations of horizontal and vertical interests ” and “ [t]o
say that only the purely vertical [ option] accords with the statutory standard is hardly rational decisionmaking , ” Pl. ’ s Reply, Ex. A (Pet ’ r ’ s Reply) at 19

. The plaintiff asserts that the District38 of Columbia Circuit decided against the Army Corps of Enginee rs in National Mining “ in light of ‘ systemic disparity between the statutory standard and [the agency ’ s] approach ” in promulgating a regulation. Id. (quoting Nat ’ l Min ing , 145 F.3d at 1407). This characterization and the derivative argument are misplaced and fail to support the plaintiff ’ s assertion. The portion of National Mining quoted by the plaintiff serves merely to support that case ’ s discussion of the Supreme Court ’ s upholding of “ a facial challenge under normal Chevron standards despite the exist ence of clearly valid applications of [ a ] regulation ” that Congress intended to include a wider breadth of coverage than the agency rules provided for. Nat ’ l Mining , 145 F.3d at 1407. This is not the situation presented by the parties in this case

. Th e dispute here instead concerns regulatory options under a vague statutory standard that may go above the prescribed minimum , but are not required , to satisfy the regulation. The plaintiff glosses over the fact that the final rules implemented (1) a pure ve rtical risk retention option that allows securitizers to retain the statute’s absolute minimum amount of required risk , (2) the ability to combine horizontal and vertical holdings, and (3) an additional “lead arranger” retention option specifically for CLO s , all indications that the agencies considered and attempted to address the broader qualms raised by commenters advocating for CLOs earlier in the rulemaking. A.R. at JA2178, 2216 (79 Fed. Reg. at 77613, 77651). In other words, t he pure vertical option undisputably satisfies the bare minimum of the Congressional mandate and the agencies’ expectations

. See id. at JA2271 (79 Fed. Reg. at 77706) (“A sponsor relying exclusively on the vertical r isk retention option will hold [five] percent of every tranche, from the senior tranche to the residual interest, and shares the same credit risk as investors in every tranche.”). In addition to the vertical option, the agencies provided o ther options

— the horizontal and combination options

— that may be utilized by re gulated entities if they desire the39 added benefits of enhanced investor clarity. See id. at JA2281 (79 Fed. Reg. at 77716) (“The agencies are adopting a requirement for sponsors to measure risk retention of an ‘eligible horizontal residual interest’

. . . using a fair value measurement framework consistent with [generally acceptable accounting principles] .”). The plaintiff also contend s that “ [t]he agencies are not permitted, in the vast range of applications of their rule, to set standards of uncerta in amounts of risk. ” Pl. ’ s Reply, Ex. A (Pet ’ r ’ s Reply) at 19 (citing Time Warner Entm ’ t Co. v. FCC , 240 F.3d 1126, 1137

– 38 (D.C. Cir. 2001) )

. But the Time Warner case cited by the plaintiff in support of this argument involved the FCC ’ s imposition of a “ numerical line ” regulation that needed to meet both the tests for arbitrariness under the APA and “ First Amendment intermediate scrutiny. ” 240 F.3d at 1137. The District of Columbia Circuit in that case noted that the agency seemed to conjure the numeri cal regulation “ out of thin air ” and provided no explanation for its decision other than “ we believe that [the limit] is appropriate to balance the goals. ” Id. This case involves no such concerns and the plaintiff ’ s cited authority does not support its p roposition. As the Court has already discussed, the agencies ’ final rule allows a vertical retention option that me e t s the exact minimum dictation of the governing statute , as well as non - mandatory horizontal options for deviation that permit regulated en tities to make their securitizations more attractive at the cost of greater risk retention. 9 The agencies did not conjure fair value “ out of thin air,” id. , but rather explained their decision by stating that fair value

9 The plaintiff also takes particular issue with the defendants’ argument that the agencies based their construction of credit risk on a “total

- loss scenar io” because “that rationale is entirely a post hoc justification, and that construction would be unreasonable even had the agencies’ orders articulated it.” Pl.’s Reply, Ex. A (Pet’r’s Reply) at 10

– 11. Although the a dministrative r ecord indicates that a “first

- loss” scenario justification may have been contemplated by the agencies in their initial proposed rule , see A.R. at JA0188 (76 Fed. Reg. at 24102) (noting that “[t] he proposed rules include a number of terms and conditions governing the structure of an eligible horizontal residual interest in order to ensure that the interest would be a ‘ first

- loss ’ position ”) , the Court is inclined to agree that a “total

- loss” scenario rationale relies on post hoc arguments. But the Court need not decide this issue because it has already held that fair value was otherwise appropriately considered by the agencies.40 uses methods consistent with valua tion methodologies familiar to market participants and provides a consistent framework for calculating residual risk retention across different securitization transactions. It also takes into account various economic factors that may affect the securitiza tion transaction, which should aid investors in assessing the degree to which a sponsor is exposed to the risk of the securitized assets.
A.R. at JA 2181 (79 Fed. Reg. at 77616)

. In sum , the agencies appropriately interpreted and discharged the statute ’ s credit risk retention requirement in their rulemaking, and they adequately considered all relevant aspects of the problems presented. C. Declining Exemption or Adjustment for Managers of Open Marke t CLOs The third and final major issue raised by the plain tiff concerns the agencies ’ power to grant exemptions or adjustments to the mandated credit risk retention rules. The plaintiff argues that the agencies “ erred in declining to exempt [managers of open market CLOs] from the retention requirements or adjust those requirements to enable managers to adhere to industry

‘ best practices ’ to retain the benchmark level of credit risk without having to commit excessive capital. ” Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 50. The plaintiff alleges that the agencies could n ot adequately explain their reasons for declining requests from commenters to exempt open market CLO managers or otherwise adjust the requirements based on the statutory exemption standards and relied on reasons that “ were internally inconsistent, illogica l, or unsupported by the record. ” Id. The plaintiff points to commenters who “argued that the structure, operation, and performance of open market CLOs justified either an exemption from or an adjustment to the credit risk requirements.” Id. The plaint iff argues that the factors raised by comments

— which included the managers’ lack of actual ownership or origination of the underlying loans, the existence of some “investor

- developed agreements” made to control investment parameters, “initial and ongoing t ransparency, “active investment management,” and certain manager compensation structures based in part on CLO performance

— supported the commenter s’41 proposals to “alter [the] ‘horizontal’ risk retention requirements to ensure that managers of open market CL Os were relieved of excessive capital commitments while still retaining far more than [five] percent of credit risk.” Id. at 50

– 51. Rejection of the proposals emanating from these comments, according to the plaintiff, was unlawful due to the agencies’ fa ilure to properly address the statutory factors for exemption consideration, the agencies’ failure to appropriately assess the costs and benefits associated with declining to grant adjustments, and the agencies’ failure to, once again, properly assess appr opriate levels of credit risk retention. Id. at 53

– 62. The defendants respond that the agencies “ reasonably implemented the statutory scheme and fully complied with the APA , ” Defs.’ Mot., Ex. A (Resp’ts’ Br.) at 53, in declining to “ grant discretionary e xemptions for CLOs from risk retention requirements or adjust those requirements to [the plaintiff ’ s] satisfaction, ” id. at 52. The statute provides that “ [t]he Federal banking agencies and the [SEC] may jointly adopt or issue exemptions, exceptions, o r adjustments to the rules issued under this section. ” 15 U.S.C. § 78o

- 11(e)(1). Any such exemptions or adjustments shall : (A) help ensure high quality underwriting standards for the securitizers and originators of assets that are securitized or availab le for securitization; and (B) encourage appropriate risk management practices by the securitizers and originators of assets, improve the access of consumers and businesses to credit on reasonable terms, or otherwise be in the public interest and for the protection of investors. Id. § 78o

- 11(e)(2). In consi dering the agencies’ refusal to grant an ex emption for open

- market CLO
managers , the scope of the Court ’ s review is “ quite narrow. ” Marshall C ty. Health Care Auth. v. Shalala , 988 F.2d 1221, 1225 (D. C. Cir. 1993). Nevertheless, such agency decisions only remain untouchable if they “ examine the relevant data and articulate a satisfactory expla na tion for its42 action including a ‘ rational connection between the facts found and the choice made. ’” State
F arm , 463 U.S. at 43 (quoting Burlington Truck Lines , 371 U.S. at 168). The “ ample power ” provided by Congress here for the agencies to regulate complex industries “ carries with it the correlative responsibility of the agenc [ies] to explain the rationale a nd factual basis for [ t heir] decision. ” Bowen , 476 U.S. at 627 . However, courts must “ show respect for the agenc[ies ’ ] judgment in both. ” Id. Moreover, w here rulemaking under a “ broad statutory directive ” might implicate “ predictive judgments about a v ariety of relevant factors, ” agency act ion in such circumstances necessitates some degree of increased deference. Bradford Nat. Cl e aring Corp. v.
SEC , 590 F.2d 1085, 1103 (D.C. Cir. 1978) ( citations omitted ); see also Nat ’ l Tel. Co

- op. Ass ’ n v. FCC , 563 F .3d 536, 541 (D.C. Cir. 2009) (acknowledging the narrowness of review when a case involves agency “ predictive judgments about the likely economic effects of a rule ” ). 1. The Statutory Factors of Exemption Consideration The Court is not persuaded that th e agencies unlawfully skirted a purported obligation to grant adjustments to open market CLO managers under the credit risk retention rules. Subsection (e) of the statute permits the agencies to grant exemptions or adjustments if such modifications “ help ensure high quality underwriting standards ” and “ encourage appropriate risk management practices by the securitizers and originators of assets, improve the access of consumers and businesses to credit on reasonable terms, or otherwise [are] in the public i nterest and for the protection of investors

. ” 15 U.S.C. § 78o

- 11(e) (2)(A), (B)

. The statute does not provide a method by which the agencies may make these determinations or include definitional statements for unclear terms like “ high quality underwriting

. ” See generally id. § 78o

- 11. In considering whether to grant the various CLO exemptions requested based on the purported supporting structural features, the agencies responded in the final rule as follows:43 While the agencies recognize that certain stru ctural features of CLOs contribute to aligning the interests of CLO managers with investors, the agencies do not believe these structural features would support a finding that the exemption would help ensure high quality underwriting standards and there ar e reasons why such an exemption may run counter to the public interest and protection of investors.
A.R. a t JA2221 (79 Fed. Reg. at 77656). The plaintiff insists that the agencies have “[ n ] o articulated basis ” to support this “bare conclusion , ” Pl. ’ s Mot ., Ex. A (Pet ’ r ’ s Br.) at 53, but the a dministrative r ecord reflects otherwise

. The agencies stated in the final rule that “CLO [s] are a type of [collateralized debt obligation] ,” A.R. at JA2215 (79 Fed. Reg. at 77650), and discussed “ many of the structur al features ” of CLOs put for ward by the plaintiff and other commenters that “ were shared by other types of [collateralized debt obligations] . . . that performed poorly during the financial crisis, ” id. at JA2221 (79 Fed. Reg. at 77656). For example, t he agencies note d that preexisting CLO management fees that may already incorporate some degree of credit risk sensitivity represent a

“ subordinated compensation structure ” that may align the goals of investors with CLO managers in some situations , but “ could also lead to a misalignment of interests ” in others, ” and “ these fees do not appear to provide an adequate substitute for risk retention because they typically have small expected value

. ” Id. Further, the plaintiff ’ s contention that the agencies failed to address the fact that CLOs performed better than the collateralized debt obligation s that performed poorly during the financial crisis, Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 59, overlooks the agency determinations that “ CLOs and [collateralized debt obliga tions] have the same general structure, ”
A.R. at JA2218 n. 161 (79 Fed. Reg. at 77653 n.161 ), that “ many of the structural features that commenters cited as mitigating risk factors for CLOs were shared by . . . [collateralized debt obligations] of asset

- bac ked securities, ” A.R. at JA2221 (79 Fed. Reg. 77656), and “ the better performance of leveraged loans after the financial crisis in CLO portfolios could be partially44 attributed to lowered interest rates and other government interventions., ” id. ; s ee also id

. at JA2293 (79 Fed. Reg. at 77728) ( noting the SEC ’ s conclusion that commenters ’ invocation of CLO performance during the financial crisis “ has the benefit of hindsight ” because “ during the financial crisis, there were considerable concerns with the abili ty of borrowers to meet their financial obligations through their collateralized loan s ” and “ aggressive monetary policy resulted in . . . making it easier for borrowers to meet their loan obligations ” ). On the whole , t he agencies reasonably address ed and considered the relevant factors behind the various proposals for exemption s , id. at JA2221

– 23 (79 Fed. Reg. at 77656

– 58) , 10 and remain ed steadfast that the rule s ’ broader concern of avoiding “ an environment susceptible to some of the abuses and

excesses ” th at contributed t o the financial crisis justified avoiding the requested adjustments , id. at JA2223 (79 Fed. Reg. at 77658); s ee also id. at JA2293 (79 Fed. Reg. at 77728) (SEC ’ s separate consideration of propo sed adjustments and its conclusion that “ commen ters ’ alternate suggestions do not create sufficient incentive alignment ” ). 11 The Court finds the agencies ’ rejection of requests for exemptions or adjustments on the basis of CLO structural factors was made in accordance with the statutory directives and was “ both reasonable and reasonably explained. ” See Nat ’ l Tel. Co

- op , 563 F.3d at 542. 12

10 The plaintiff states that these portions of the record address only requests for “ total exemption[s]” rather than

“ adjustments .” Pl.’s Reply, Ex. A (Pet ’r’s Rep ly) at 24 . However, the agencies’ discussion in its totality and the agencies’ introductory overviews of the comments sufficiently show that the agenc ies considered “alternative options for meeting risk retention,” as well as broader exemptions. A.R. at JA2218 (79 Fed. Reg. at 77653).

11 The plaintiff also asserts, without authority, that the SEC’s separate analysis “cannot justify [ the ] joint order” because the other agencies did not expressly join it. Pl.’s Reply, Ex. A (Pet’r’s Reply) at 24. However, the SEC only wrote separately in the final rule because “when making rules under the Exchange Act,” the SEC must particularly “consider the impact on competition that the rules would have.” A.R. at JA2270 (79 Fed. Reg. at 77705) (citing 15 U.S. C. § 78w(a)). Nevertheless, the joint nature of this proceeding suggests that the Court may examine this separate analysis insofar as it weighs on whether the agencies “ failed to consider an important aspect of the problem .” State Farm , 463 U.S. at 43.

12 The plaintiff reignite s its argument that the agencies failed to adequately defend their approach for assessing levels of risk beyond what the plaintiff calls “ the statutoril y required level of credit risk ” in arguing that open CLO (continued . . . )45 2. The SEC’s Assessment of Costs and Benefits The plaintiff also asserts that the agencies inadequately assessed the costs and benefits inherent in rejecting the al ternatives proposed in the comments they received

. See Pl

. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 54. While no provisions in the governing statute specifically requir e a cost

benefit analysis, the SEC has a separate obligation to “ determine as best it can the ec onomic implications of [a] rule, ” Chamber of Commerce v. SEC , 412 F.3d 133, 143 (D.C. Cir. 2005), and “ to consider the effect of a new rule upon ‘ efficiency, competition , and capital formation, ’” Bus. Roundtable , 647 F.3d at 1148 (quoting 15 U.S.C. §§ 78c( f), 78w(a)(2)). The defendants contend that the SEC “ fulfilled its statutory obligation in a separate section [of the final rule ] , ” Defs. ’ Mot., Ex. A ( Resp’ts’ Br.) at 59 (citing A.R. at JA2270

– 05 (79 Fed. Reg. at 77705

– 40) ( “[the SEC’s] Economic Analysi s” ) ) , and further argue that the agencies collectively “ considered the rule ’ s potential economic implications ” when explaining “ choices that Congress left to the agencies ’ discretion, ” i d. The Court agrees with the defendants that the agencies gave an a ppropriate level of consideration to the possible costs and benefits of the rules without an adjustment or exemption

. Alt hough the plaintiff insists that the agencies

— largely the SEC

— improperly or inconsistently weighed agency - acknowledged “ decrease [s] in competition , ” “ higher rates , ” and potential negative fluctuations in the CLO market resulting from the final rule without adjustment of the assessed benefits , Pl. ’ s Mot., Ex. A (Pet ’ r ’ s Br.) at 54

– 55 , the administrative record reflects a sufficient founda tion to which this Court may defer. The SEC attempted to quantify the unadjusted rules ’ impacts, despite existing data that likely fail ed to “ provide a basis to fully

(. . . continued) man agers should have been granted an exemption or adjustment. Pl.’s Reply, Ex. A (Pet’r’s Reply) at 22 . But the statute sets no such required level ; instead, it sets a bare minimum

. 15 U.S.C. § 78o

- 11(c)(1)(B)(i) (mandating that regulations require retenti on of “ not less than [five] percent of the credit risk ” ) (emphasis added)

.46 assess the rule ’ s economic impact. ” A.R. at JA2270 (79 Fed. Reg. at 77705). The “ lack of available data ” and the dependence “ on how sponsors, issuers, investors, and other parties

. . . will adjust on a long

- term basis, ” led the SEC to conclude that it could not truly quantify or predict specific economic effects. Id. Nevertheless, the SE C engaged in a lengthy and thorough analysis of the various applicable factors , id. at JA2270

– 95 (79 Fed. Reg. at 77705

– 30) , and estimated “ an approximately 14.8 percent reduction in supply of capital ” to the pertinent market for CLOs , id. at JA2295 (79 Fe d. Reg. at 77730). The SEC also confronted contrary findings submitted by commenters and explained the agencies ’ qualms with more costly estimates. See, e.g. , id. at JA229 2

– 9 3 (79 Fed. Reg. at 77727

– 28 ) (questioning and refuting “several assumptions” of a study submitted by Oliver Wyman, which claimed that “ credit spreads will increase from 117 to 292 basis points and costs to borrowers will increase between $2.5 billion and $3.8 billion per year ”) . The SEC ’ s estimation s and its statutorily required

cons ideration are entitled to the Court ’ s deference because the SEC has clearly “ apprised itself

— and hence the public and Congress

— of the economic consequences of a proposed regulation. ” Chamber of Commerce , 412 F.3d at 144. The decision to promulgate the fi nal rule without an adjustment or exemption for open market CLO managers , despite this potentially negative effect on the CLO market, is entitled to deference because , “ [d]espite the lack of data, the [SEC and the other agencies] had to promulgate a [ ] ru le , ” and they “ relied on Congress ’ s determin[ation] that [the rule ’ s] costs were necessary and appropriate in furthering the goals ” of rehabilitating the securitization markets safely by requirin g securitizers to keep sufficient skin in the game. See
Nat ’ l Ass ’ n of Mfrs. v. SEC , 748 F.3d 359, 369 (D.C. Cir. 2014) ( internal quotations and citations omitted ) , adhered to on reh ’ g Nat ’ l Ass ’ n of Mfrs. v. SEC , 800 F.3d 518 (D.C. Cir. 2015) , overruled in part on other grounds by Am. Meat Inst. v. U.S. Dep ’ t of A gric. , 760 F.3d 1847 (D.C. Cir. 2014) ; see also S. Rep. No. 111

- 176 , at 128

– 29 ( outlining Congress’s intention to address the “‘originate to distribute’ model” and “ [ c ] omplexity and opacity in securitization markets” by “ aligning [securitizers ’ ] economic int erests with those of investors” by requiring them to “ retain a material amount of risk”)

. The plaintiff’s various arguments against the agencies’ economic assessments amount to little more than attacks on the rules for any restricti o n of growth in the C LO market. But t he mere fact that the credit risk retention rules , without adjustment or exemption, would burden the CLO market to any degree cannot amount to agency fault ; weighing the economic impact is a policy decision for Congress and the agencies to make , not the Court

. Cf. Pub. Citizen v. Nat’l Highway Traffic Safety Admin. , 848 F.2d 256, 267 (D.C. Cir. 1988) (noting that a court must not “substitute [its] judgment for that of the agency as to the environmental consequences of its actions” because the court’s “more limited role is to ensure, primarily, that no arguably significant consequences have been ignored; evaluating the ‘impact’ of those consequences . . . is ‘left to the judgment of the agency’” (first quoting Kleppe v. Sierra Club , 427 U.S. 390, 410 n.21 (1976), then quoting Sierra Club v. U.S. Dep’t of Transp. , 753 F.2d 120, 128 (D.C. Cir. 1985))

. I n this case, the SEC and the other agencies appropriately evaluated the costs and benefits, while refraining from questioning Congress ’ s “ basic premise ” of requiring the adoption of credit risk retention rules to begin with , due to the failure of certain securitizations during the financial crisis , which necessitate d the adoption of additional burdens in order to rehabilitate the market and reins tall investor confidence. Nat ’ l Ass ’ n of Mfrs. v. SEC , 748 F.3d at 370; see also Pub. Citizen v. FTC , 869 F.2d 1541, 1557 (D.C. Cir. 1989) ( “ While agencies may safely be assumed to have discretion to create exceptions at the margins of a regulatory field, they are not thereby48 empowered to weigh the costs and benefits of regulation at every turn; agencies surely do not have inherent aut hority to second

- guess Congress’ calculations. ”).
IV. C ONCLUSION The Court concludes that the final credit risk retention rules adopted by the defen dants and the other agencies comply with the APA . Despite the final rule ’ s formulation and adoption by multiple agencies, the Chevron framework applies in this case , and the Court must defer to the agencies ’ reasonable interpreta tion of the term “ securitizer ” in the absence of any other defect in the agencies ’ rulemaking process. Further, the agencies ’ gauging of credit risk through the use of “ fair value ” measurements for certain retention structures amounts to an appropriate
in terpretation of the s tatutory requirements, and the a dministrative r ecord reflects that the agencies ’ conclusions on this topic were sufficiently reasoned in light of the relevant factors. Finally, the agencies did not act arbitrarily, capriciously , or ot herwise unlawfully in declining to provide an exemption or adjustment to the credit risk retention rules for open market CLOs. Accordingly, the Court will deny the Plaintiff ’ s Motion for Summary Judgment and grant the Defendants ’ Motion for Summary Judgme nt. SO ORDERED this 2 2nd day of December , 2016

. 13

REGGIE B. WALTON United States District Judge

13 An O rder will be issued contemporaneously with this Memorandum O pinion.