I 
115TH CONGRESS 
1ST SESSION H. R. 3772 
To amend the Securities Exchange Act of 1934 to provide specific credit 
risk retention requirements to certain qualifying collateralized loan obligations. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 14, 2017 
Mr. BARR (for himself and Mr. DAVID SCOTT of Georgia) introduced the 
following bill; which was referred to the Committee on Financial Services 
A BILL 
To amend the Securities Exchange Act of 1934 to provide 
specific credit risk retention requirements to certain 
qualifying collateralized loan obligations. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Expanding Proven Fi-
nancing for American Employers Act’’. 
SEC. 2. RISK RETENTION REQUIREMENT FOR QUALIFIED 
COLLATERALIZED LOAN OBLIGATIONS. 
Section 15G(e) of the Securities Exchange Act of 
1934 (15 U.S.C. 780–11(e)) is amended by inserting after 
paragraph (6) the following new paragraphs: 
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‘‘(7) 
REQUIREMENTS
FOR
QUALIFIED 
COLLATERALIZED LOAN OBLIGATIONS.— 
‘‘(A) RISK
RETENTION
REQUIREMENT.— 
Notwithstanding any other provision of this sec-
tion, as of the effective date set forth in sub-
section (i)(2), the risk retention requirement for 
qualified collateralized loan obligations may be 
met by the purchase and, during the applicable 
duration of risk retention specified by the rules 
of the Federal banking agencies under sub-
section (c)(1)(C)(ii), holding (without hedging 
or otherwise transferring the credit risk), of se-
curities of the collateralized loan obligation with 
the value of not less than 5 percent of the eq-
uity of the collateralized loan obligation by the 
manager of the qualified collateralized loan obli-
gation or one or more of the majority-owned af-
filiates of the manager or its knowledgeable em-
ployees and other employees; provided, that of 
that amount, 70 percent shall be held in the 
form of equity securities and the remainder 
shall be held ratably in securities of all other 
tranches of the securitization. 
‘‘(B) QUALIFIED
COLLATERALIZED
LOAN 
OBLIGATIONS.—For purposes of this paragraph, 
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a qualified collateralized loan obligation is a 
collateralized loan obligation that meets all of 
the following requirements: 
‘‘(i) ASSET QUALITY PROTECTIONS.— 
The collateralized loan obligation shall— 
‘‘(I) have at least 100 percent of 
its assets comprised of senior secured 
loans and cash equivalents; 
‘‘(II) have 100 percent of its loan 
assets issued by companies; 
‘‘(III) have no assets that are 
asset-backed securities or derivatives, 
except that this limitation shall not 
prohibit a qualified collateralized loan 
obligation from acquiring a loan par-
ticipation or any interest related to or 
in a letter of credit, or entering into 
derivative transactions to hedge inter-
est rate or currency rate mismatches; 
‘‘(IV) not purchase assets in de-
fault, margin stock, or equity convert-
ible securities; 
‘‘(V) acquire only loans held or 
acquired by three or more investors or 
lenders unaffiliated with the manager; 
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‘‘(VI) hold only loans to bor-
rowers whose financial statements are 
subject to an annual audit from an 
independent, 
accredited 
accounting 
firm; 
‘‘(VII) have no more than 60 
percent of its assets comprised of cov-
enant lite loans, except that each 
asset shall require the disclosure of 
unaudited financial statements quar-
terly within 60 days of the end of the 
quarter and audited financial state-
ments annually within 120 days of the 
end of the fiscal year; and 
‘‘(VIII) at the time of purchase 
of any asset, comply with the require-
ments of subclauses (I) and (VII) and 
clause (ii) of this subparagraph, or, if 
not in compliance with any such re-
quirement, maintain or improve the 
level of compliance after giving effect 
to such purchase. 
‘‘(ii) 
ASSET
PORTFOLIO
PROTEC-
TIONS.— 
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‘‘(I) No more than 3.5 percent of 
the assets of the collateralized loan 
obligation may relate to any single 
borrower. 
‘‘(II) No more than 15 percent of 
the assets of the collateralized loan 
obligation may relate to any single in-
dustry. 
‘‘(iii) STRUCTURAL PROTECTIONS.— 
‘‘(I) The collateralized loan obli-
gation’s equity shall be at least 8 per-
cent of the value of its assets. 
‘‘(II) The governing transaction 
documents of the collateralized loan 
obligation specify over-collateralization 
and interest coverage tests, and if any 
such test falls below the required level 
specified for the collateralized loan ob-
ligation in such documents, available 
interest collections (and if necessary, 
available principal collections) must be 
applied to repay the collateralized loan 
obligation’s debt in order of seniority 
until compliance with the applicable 
test is restored. 
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‘‘(iv) REQUIREMENT
TO
MAINTAIN 
ALIGNMENT OF MANAGER AND INVESTOR 
INTERESTS.— 
‘‘(I) The collateralized loan obli-
gation shall be an open market 
collateralized loan obligation. 
‘‘(II) The holders of the equity of 
the collateralized loan obligation (ex-
cluding the risk retention equity held 
as required by subparagraph (A)) 
shall have the right to remove by vote 
the manager for cause. 
‘‘(III) A majority of the man-
ager’s fees, including any incentive 
fee, shall be subordinated to payments 
then 
due 
in 
relation 
to 
the 
collateralized loan obligation’s debt se-
curities. 
‘‘(IV) 
The 
manager’s 
discre-
tionary sales of assets on behalf of the 
issuer of the collateralized loan obliga-
tion shall be limited each year to not 
more than 30 percent of the principal 
amount 
of 
the 
assets 
of 
the 
collateralized loan obligation (other 
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than sales of defaulted or credit-dete-
riorated, 
credit-risk, 
or 
credit-im-
proved loans). 
‘‘(V) The risk retention equity 
requirement set forth in subparagraph 
(A) is met. 
‘‘(VI) All holders of collateralized 
loan obligation securities that are 
U.S. persons within the meaning of 
Regulation S (17 C.F.R. 230; 249) 
under the Securities Act of 1933, are 
qualified investors. 
‘‘(v) REGULATORY
OVERSIGHT
RE-
QUIREMENTS.— 
‘‘(I) 
The 
manager 
of 
the 
collateralized loan obligation shall be 
registered with the Commission as an 
investment adviser under section 203 
of the Investment Advisers Act of 
1940 (15 U.S.C. 80b–3). 
‘‘(II) All purchases and sales of 
the assets of the collateralized loan 
obligation shall be conducted on an 
arm’s-length basis and in compliance 
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with any applicable provisions of the 
Investment Advisers Act of 1940. 
‘‘(vi) REQUIREMENTS
RELATING
TO 
TRANSPARENCY
AND
DISCLOSURE.—A 
monthly report shall be made available to 
holders 
of 
debt 
securities 
of 
the 
collateralized loan obligation, which in-
cludes information regarding— 
‘‘(I) a list of assets of the 
collateralized loan obligation, includ-
ing, with respect to each asset, the ob-
ligor name; the CUSIP (or security 
identifier) if applicable, the interest 
rate and maturity date, the type of 
asset, and the market price for each 
asset where available; 
‘‘(II) with respect to the portfolio 
of assets, the aggregate principal bal-
ance and aggregate adjusted collateral 
principal amount (adjusted as re-
quired by the collateralized loan obli-
gation governing transaction docu-
ments) and the percentage of such ag-
gregate adjusted collateral principal 
represented by each asset; 
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‘‘(III) information relating to 
each applicable over-collateralization 
test and interest coverage test and the 
level of compliance in relation to each 
test; 
‘‘(IV) all purchases, repayments, 
and sales of assets; and 
‘‘(V) the identity of each de-
faulted asset as defined in the related 
transaction documents. 
‘‘(8) DEFINITIONS
FOR
PURPOSES
OF
PARA-
GRAPH (7).—For purposes of paragraph (7), the fol-
lowing definitions apply: 
‘‘(A) BALANCE
SHEET
COLLATERALIZED 
LOAN
OBLIGATION.—The term ‘balance sheet 
collateralized 
loan 
obligation’ 
means 
a 
collateralized loan obligation— 
‘‘(i) whose assets consist predomi-
nantly of loans originated and transferred 
to the collateralized loan obligation by one 
or more of its affiliates other than in— 
‘‘(I) open market transactions; 
‘‘(II) from an open market 
collateralized loan obligation; or 
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‘‘(III) from a collateralized loan 
obligation in existence as of the effec-
tive date of this paragraph that is not 
a balance sheet collateralized loan ob-
ligation; and 
‘‘(ii) the assets and liabilities of which 
are, immediately after issuance of its asset- 
backed securities in a securitization trans-
action, included under generally accepted 
accounting principles in the consolidated 
balance sheet of one or more of its affili-
ates. 
‘‘(B) COLLATERALIZED
LOAN
OBLIGA-
TION.—The term ‘collateralized loan obligation’ 
means any issuing entity of an asset-backed se-
curity, as defined in section 3(a)(79) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 
78c(a)(79)), that is comprised primarily of com-
mercial loans. 
‘‘(C) COVENANT
LITE
LOAN.—The term 
‘covenant lite loan’ means, at the time the 
collateralized loan obligation enters into a com-
mitment to acquire such loan, a loan for which 
the underlying instruments neither— 
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‘‘(i) require the obligor to comply with 
any maintenance covenant; nor 
‘‘(ii) contain a cross-default provision 
to a financing facility of the obligor that 
requires the obligor to comply with a main-
tenance covenant (including one that may 
apply only upon the funding of such other 
loan or financing facility); except that if 
such loan is pari passu with another loan 
of the obligor that would not be a covenant 
lite loan under the criteria in this clause, 
such loan shall be deemed not to be a cov-
enant lite loan. For purposes of this 
clause, the term ‘pari passu’ means treated 
equally and without preference. 
‘‘(D) EQUITY.—The term ‘equity’ means 
the most junior class of securities issued by the 
collateralized loan obligation (excluding any 
non-economic security such as the issuer’s com-
mon stock) and any additional class(es) of secu-
rities junior to the collateralized loan obliga-
tion’s debt securities. 
‘‘(E) MANAGER.—The term ‘manager’ 
means an investment manager that is respon-
sible for managing a collateralized loan obliga-
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tion under the collateralized loan obligation’s 
governing transaction documents. 
‘‘(F) OPEN
MARKET
COLLATERALIZED 
LOAN
OBLIGATION.—The term ‘open market 
collateralized 
loan 
obligation’ 
means 
a 
collateralized loan obligation— 
‘‘(i) whose assets consist predomi-
nantly of senior, secured syndicated loans 
acquired by such collateralized loan obliga-
tion directly from the sellers thereof in an 
open market transaction or from another 
collateralized loan obligation and of tem-
porary investments; 
‘‘(ii) that is managed by a manager; 
and 
‘‘(iii) that is not a balance sheet 
collateralized loan obligation. 
‘‘(G) OPEN MARKET TRANSACTION.—The 
term ‘open market transaction’ means— 
‘‘(i) either an initial loan syndication 
transaction or a secondary market trans-
action in which a seller offers senior, se-
cured syndicated loans to prospective pur-
chasers in the loan market on market 
terms on an arm’s length basis, which pro-
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spective purchasers include, but are not 
limited to, entities that are not affiliated 
with the seller; or 
‘‘(ii) a reverse inquiry from a prospec-
tive purchaser of a senior, secured syn-
dicated loan through a dealer in the loan 
market to purchase a senior, secured syn-
dicated loan to be sourced by the dealer in 
the loan market. 
‘‘(H) QUALIFIED
INVESTOR.—The term 
‘qualified investor’ means— 
‘‘(i) with respect to securities that re-
quire the payment of principal and inter-
est, an investor that is a qualified pur-
chaser, within the meaning of section 
3(c)(7) of the Investment Company Act of 
1940 (15 U.S.C. 80a–3(c)(7)) or an entity 
owned exclusively by one or more qualified 
purchasers; or 
‘‘(ii) with respect to securities that do 
not require the payment of principal and 
interest— 
‘‘(I) if the qualified collateralized 
loan obligation relies on such section 
for its exclusion from the definition of 
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investment company under the Invest-
ment Company Act of 1940— 
‘‘(aa) a qualified purchaser; 
‘‘(bb) a knowledgeable em-
ployee, within the meaning of 
Rule 3c–5 promulgated under the 
Investment 
Company 
Act 
of 
1940; or 
‘‘(cc) an entity owned exclu-
sively by such a qualified pur-
chaser 
or 
knowledgeable 
em-
ployee; or 
‘‘(II) if the qualified collatera-
lized loan obligation relies on Rule 
3a–7 promulgated under the Invest-
ment Company Act of 1940 for its ex-
clusion from the definition of invest-
ment company under that Act and 
such securities are not fixed-income 
securities, as defined in such rule— 
‘‘(aa) a qualified institution-
al buyer, within the meaning of 
Rule 144A under the Securities 
Act of 1933; 
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