As you may have heard, several federal regulatory agencies recently jointly issued the Notice of Proposed Rulemaking (“NPR”) regarding the general credit risk retention requirements for asset-backed securitizations (“ABS”) and the proposed requirements for exemptions from the risk retention requirement for certain securitizations as mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Generally, under the NPR, ABS sponsors are required to retain 5% of the credit risk for any securitized asset, subject to hedging, transfer and finance restrictions, in one of the five permissible forms set forth therein. The NPR attempts to articulate comprehensive, asset-class-by-asset-class standards that would qualify an ABS securitization for exemption from the requirement to hold the credit risk of the underlying assets. We encourage interested readers to refer to our examination of the risk retention requirements and exemption standards as applied to CLOs in this Dechert OnPoint (pdf) and as applied to residential mortgage backed securities in this Dechert OnPoint (pdf). (Also available here).
There will be more to come on CrunchedCredit as we examine the implications the NPR. We will keep you posted.
By Stewart McQueen and John Bumgarner.