A recent SEC no-action letter is expected to help the U.S. Collateralized Loan Obligation (CLO) market comply with Rule 192, a new conflicts of interest regulation taking effect June 9. The rule, part of Dodd-Frank reforms, aims to prevent asset-backed securities (ABS) transactions that create material conflicts between participants and investors.

To address these concerns, the SEC said it would not recommend enforcement if firms adopt policies to separate ABS deal teams from other trading staff and restrict access to sensitive information.

Craig Stein, co-head of Schulte’s Finance Group spoke with LSEG LPC and explained:

“When the market or an entity wants clarification or to determine if a specific path will comply with a rule, market participants can request a no-action letter from the agency, where they lay out, ‘If I do a, b or c, and I follow these rules and regulations, will the staff not recommend that the agency take any action or enforcement against me.’”

He also noted the urgency of implementation:

“Many firms are not waiting for the June 9 deadline to comply. Compliance is required from the date the securitization is agreed to, so if a firm entered into an engagement letter with a bank to securitize assets three months ago and it will close after June 9, that firm will need to be in compliance during that entire timeframe.”

Craig stressed the rule’s broad reach:

“Every securitization participant, even those that have scrubbed inhouse to make sure no deal team is doing something that might be a conflicted transaction, needs to put policy and procedures in place. It affects everyone.”

In his latest article for The Bankruptcy Strategist titled, “Third Circuit’s Mootness Debate Avoids Reversal of Confirmation Order,” Schulte Roth & Zabel of counsel Michael L. Cook explains the Third Circuit’s dismissal of two tort claimants’ appeals in the Boy Scouts of America reorganization case on the ground of statutory mootness. The appellants sought reversal of a plan confirmation order authorizing the sale of the debtor’s insurance policies under Bankruptcy Code §363(b). Since the sale was made in good faith and not stayed, Code §363(m) barred reversal because the appeals would affect the sale’s validity, a principal part of the chapter 11 plan.

Appeals from two other groups of insurers, C and D, however, were not subject to the same statutory restriction, allowing the court to address their merits. Although the majority dismissed A and B’s appeals as statutorily moot, a concurring judge argued that equitable mootness warranted dismissal of A and B’s appeals, while agreeing with the majority’s treatment of the appeals by C and D. This mootness debate enabled the court to avoid addressing the nonconsensual third-party releases in the debtor’s reorganization plan that would have been invalidated by the US Supreme Court’s 2024 Purdue Pharma decision.

Read the article.