,,ib ,union ,calendar ,no4 #dfb #aadth ,,congress #b;d ,session ,h4 ,r4 #daff ,report ,no4 #aad-eif ,,in ,,the ,,house ,,of ,,representatives ,december #c1 #bjae ,mr4 ,barr 7for himself and ,mr4 ,david ,scott of ,georgia7 introduced the following bill2 which was referred to the ,committee on ,financial ,services ,may #bf1 #bjaf ,additional sponsors3 ,mr4 ,foster1 ,mr4 ,guinta1 ,mr4 ,huizenga of ,michigan1 ,mrs4 ,wagner1 ,mr4 ,marchant1 ,mr4 ,stivers1 ,mr4 ,mc,henry1 ,mr4 ,fitzpatrick1 ,mr4 ,luetkemeyer1 ,mr4 ,carney1 and ,mr4 ,hill ,may #bf1 #bjaf ,reported with an amendment1 committed to the ,committee of the ,whole ,house on the ,state of the ,union1 and ordered to be printed ,strike out all after the enacting clause and insert the part printed in italic ,for text of introduced bill1 see copy of bill as introduced on ,december #c1 #bjae ,a ,,bill ,to amend the ,securities ,exchange ,act of #aicd to provide specific credit risk retention requirements to certain qualifying collateralized loan obligations4 #a4 ,short title ,this ,act may be cited as the ,expanding ,proven ,financing for ,american ,employers ,act4 #b4 ,risk retention requirement for qualified collateralized loan obligations ,section #ae;,g7e7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #ghj-aa7;e77 is amended by inserting after paragraph 7#f7 the following new paragraphs3 7#g7 ,requirements for qualified collateralized loan obligations 7,a7 ,risk retention requirement ,notwithstanding any other provision of this section1 as of the effective date set forth in subsection 7i77#b71 the risk retention requirement for qualified collateralized loan obligations may be met by the purchase and1 during the applicable duration of risk retention specified by the rules of the ,federal banking agencies under subsection 7c77#a77;,c77ii71 holding 7without hedging or otherwise transferring the credit risk71 of the value of no less than five percent of the equity distributed among each of the higher tranches of the issuance with no less than #c4e percent retained as equity of the collateralized loan obligation by the manager of the qualified collateralized loan obligation or one or more of the majority-owned affiliates of the manager or its knowledgeable employees and other employees4 7,b7 ,qualified collateralized loan obligations ,for purposes of this paragraph1 a qualified collateralized loan obligation is a collateralized loan obligation that meets all of the following requirements3 7i7 ,asset quality protections ,the collateralized loan obligation shall-- 7,i7 have at least #ajj percent of its assets comprised of senior secured loans and cash equivalents2 7,,ii7 have #ajj percent of its loan assets issued by companies2 7,,iii7 have no assets that are asset-backed securities or derivatives1 except that this limitation shall not prohibit a qualified collateralized loan obligation from acquiring a loan participation or any interest related to or in a letter of credit1 or entering into derivative transactions to hedge interest rate or currency rate mismatches2 7,,iv7 not purchase assets in default1 margin stock1 or equity convertible securities2 7,v7 acquire only loans held or acquired by three or more investors or lenders unaffiliated with the manager2 7,,vi7 hold only loans to borrowers whose financial statements are subject to an annual audit from an independent1 accredited accounting firm2 7,,vii7 have no more than #fj percent of its assets comprised of covenant lite loans1 except that each asset shall require the disclosure of unaudited financial statements quarterly within #de days of the end of the quarter and audited financial statements annually within #ij days of the end of the fiscal year2 and 7,,viii7 at the time of purchase of any asset1 comply with the requirements of subclauses 7,i7 and 7,,vii7 and clause 7ii7 of this subparagraph1 or1 if not in compliance with any such requirement1 maintain or improve the level of compliance after giving effect to such purchase4 7ii7 ,asset portfolio protections 7,i7 ,no more than #c4e percent of the assets of the collateralized loan obligation may relate to any single borrower4 7,,ii7 ,no more than #ae percent of the assets of the collateralized loan obligation may relate to any single industry4 7iii7 ,structural protections 7,i7 ,the collateralized loan obligation's equity shall be at least #h percent of the value of its assets4 7,,ii7 ,the governing transaction documents of the collateralized loan obligation specify over-collateralization and interest coverage tests1 and if any such test falls below the required level specified for the collateralized loan obligation in such documents1 available interest collections 7and if necessary1 available principal collections7 must be applied to repay the collateralized loan obligation's debt in order of seniority until compliance with the applicable test is restored4 7iv7 ,requirement to maintain alignment of manager and investor interests 7,i7 ,the collateralized loan obligation shall be an open market collateralized loan obligation4 7,,ii7 ,the holders of the equity of the collateralized loan obligation 7excluding the risk retention equity held as required by subparagraph 7,a77 shall have the right to remove by vote the manager for cause4 7,,iii7 ,a majority of the manager's fees1 including any incentive fee1 shall be subordinated to payments then due in relation to the collateralized loan obligation's debt securities4 7,,iv7 ,the manager's discretionary sales of assets on behalf of the issuer of the collateralized loan obligation shall be limited each year to not more than #cj percent of the principal amount of the assets of the collateralized loan obligation 7other than sales of defaulted or credit-deteriorated1 credit-risk1 or credit-improved loans74 7,v7 ,the risk retention equity requirement set forth in subparagraph 7,a7 is met4 7,,vi7 ,all holders of collateralized loan obligation securities that are ,u4,s4 persons within the meaning of ,regulation ,s 7#ag ,c4,f4,r4 #bcj2 #bdi7 under the ,securities ,act of #aicc1 are qualified investors4 7v7 ,regulatory oversight requirements 7,i7 ,the manager of the collateralized loan obligation shall be registered with the ,commission as an investment adviser under section #bjc of the ,investment ,advisers ,act of #aidj 7#ae ,u4,s4,c4 #hj;b-#c74 7,,ii7 ,all purchases and sales of the assets of the collateralized loan obligation shall be conducted on an arm's-length basis and in compliance with any applicable provisions of the ,investment ,advisers ,act of #aidj4 7vi7 ,requirements relating to transparency and disclosure ,a monthly report shall be made available to holders of debt securities of the collateralized loan obligation1 which includes information regarding-- 7,i7 a list of assets of the collateralized loan obligation1 including1 with respect to each asset1 the obligor name2 the ,,cusip 7or security identifier7 if applicable1 the interest rate and maturity date1 the type of asset1 and the market price for each asset where available2 7,,ii7 with respect to the portfolio of assets1 the aggregate principal balance and aggregate adjusted collateral principal amount 7adjusted as required by the collateralized loan obligation governing transaction documents7 and the percentage of such aggregate adjusted collateral principal represented by each asset2 7,,iii7 information relating to each applicable over-collateralization test and interest coverage test and the level of compliance in relation to each test2 7,,iv7 all purchases1 repayments1 and sales of assets2 and 7,v7 the identity of each defaulted asset as defined in the related transaction documents4 7#h7 ,definitions for purposes of paragraph 7#g7 ,for purposes of paragraph 7#g71 the following definitions apply3 7,a7 ,balance sheet collateralized loan obligation ,the term balance sheet collateralized loan obligation means a collateralized loan obligation-- 7i7 whose assets consist predominantly of loans originated and transferred to the collateralized loan obligation by one or more of its affiliates other than in-- 7,i7 open market transactions2 7,,ii7 from an open market collateralized loan obligation2 or 7,,iii7 from a collateralized loan obligation in existence as of the effective date of this paragraph that is not a balance sheet collateralized loan obligation2 and 7ii7 the assets and liabilities of which are1 immediately after issuance of its asset-backed securities in a securitization transaction1 included under generally accepted accounting principles in the consolidated balance sheet of one or more of its affiliates4 7,b7 ,collateralized loan obligation ,the term collateralized loan obligation means any issuing entity of an asset-backed security1 as defined in section #c7;a77#gi7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;c7a77#gi771 that is comprised primarily of commercial loans4 7,c7 ,covenant lite loan ,the term covenant lite loan means1 at the time the collateralized loan obligation enters into a commitment to acquire such loan1 a loan for which the underlying instruments neither-- 7i7 require the obligor to comply with any maintenance covenant2 nor 7ii7 contain a cross-default provision to a financing facility of the obligor that requires the obligor to comply with a maintenance covenant 7including one that may apply only upon the funding of such other loan or financing facility72 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 clause1 such loan shall be deemed not to be a covenant lite loan4 ,for purposes of this clause1 the term pari passu means treated equally and without preference4 7,d7 ,equity ,the term equity means the most junior class of securities issued by the collateralized loan obligation 7excluding any non-economic security such as the issuer's common stock7 and any additional class7es7 of securities junior to the collateralized loan obligation's debt securities4 7,e7 ,manager ,the term manager means an investment manager that is responsible for managing a collateralized loan obligation under the collateralized loan obligation's governing transaction documents4 7,f7 ,open market collateralized loan obligation ,the term open market collateralized loan obligation means a collateralized loan obligation-- 7i7 whose assets consist predominantly of senior1 secured syndicated loans acquired by such collateralized loan obligation directly from the sellers thereof in an open market transaction or from another collateralized loan obligation and of temporary investments2 7ii7 that is managed by a manager2 and 7iii7 that is not a balance sheet collateralized loan obligation4 7,g7 ,open market transaction ,the term open market transaction means-- 7i7 either an initial loan syndication transaction or a secondary market transaction in which a seller offers senior1 secured syndicated loans to prospective purchasers in the loan market on market terms on an arm's length basis1 which prospective purchasers include1 but are not limited to1 entities that are not affiliated with the seller2 or 7ii7 a reverse inquiry from a prospective purchaser of a senior1 secured syndicated loan through a dealer in the loan market to purchase a senior1 secured syndicated loan to be sourced by the dealer in the loan market4 7,h7 ,qualified investor ,the term qualified investor means-- 7i7 with respect to securities that require the payment of principal and interest1 an investor that is a qualified purchaser1 within the meaning of section #c7;c77#g7 of the ,investment ,company ,act of #aidj 7#ae ,u4,s4,c4 #hj;a-#c7;c77#g77 or an entity owned exclusively by one or more qualified purchasers2 or 7ii7 with respect to securities that do not require the payment of principal and interest-- 7,i7 if the qualified collateralized loan obligation relies on such section for its exclusion from the definition of investment company under the ,investment ,company ,act of #aidj-- 7aa7 a qualified purchaser2 7bb7 a knowledgeable employee1 within the meaning of ,rule #c;c-#e promulgated under the ,investment ,company ,act of #aidj2 or 7cc7 an entity owned exclusively by such a qualified purchaser or knowledgeable employee2 or 7,,ii7 if the qualified collateralized loan obligation relies on ,rule #c;a-#g promulgated under the ,investment ,company ,act of #aidj for its exclusion from the definition of investment company under that ,act and such securities are not fixed-income securities1 as defined in such rule-- 7aa7 a qualified institutional buyer1 within the meaning of ,rule #add;,a under the ,securities ,act of #aicc2 7bb7 a person 7other than any rating organization rating the issuer's securities7 involved in the organization or operation of the issuer or an affiliate of such a person1 as defined in ,rule #dje under the ,securities ,act of #aicc2 or 7cc7 any entity in which all of the equity owners are such qualified institutional buyers as described in item 7aa7 or persons described in item 7bb74 4 ,may #bf1 #bjaf ,reported with an amendment1 committed to the ,committee of the ,whole ,house on the ,state of the ,union1 and ordered to be printed