USA Law and Practice Contributed by: Bjorn Bjerke, Corey Reis and Joshua Kopel, A&O Shearman
CLO-Type Structures The CLO is actively managed and will acquire and maintain a diversified pool of underlying loans that is managed to conform to a number of concentration limits for the pool, with the goal of maximising return while maintaining the required pool diversification and other relevant transac - tion criteria. As noted in 4.11 Activities Avoided by SPEs or Other Securitisation Entities , this has impacts on the Investment Company Act and Volcker Rule analysis. Open-market CLOs will not be subject to US risk retention requirements, as discussed in 4.3 Credit Risk Retention . The CLO issuer will typi - cally be organised as a Cayman Island company and will structure its loan acquisitions to avoid being engaged in any US trade or business, as discussed in 7. Tax Laws and Issues . 1.3 Applicable Laws and Regulations The principal laws and regulations that have a material effect on US securitisation structures are: • the Securities Act of 1933 (“Securities Act”); • the Securities Exchange Act of 1934 (“Exchange Act”); • Regulation AB, as significantly revised and updated in 2014 (“Reg, AB II”); • the Dodd-Frank Wall Street Reform and Con - sumer Protection Act of 2010 (“Dodd-Frank Act”); • Regulation RR; • the Volcker Rule; • the Investment Company Act of 1940 (“Investment Company Act”); • SEC Rule 192 under the Securities Act and Dodd-Frank Act (“Rule 192”); and • the US Bankruptcy Code.
relating to titled goods. A titling trust is estab - lished to originate the lease and hold title to the leased assets. Instead of selling the assets and leases to be securitised to a particular issuer, the titling trust segregates such leases and assets, and issues special units of beneficial interests (SUBIs) that represent the interest in such seg - regated pool. The structure is otherwise typi - cally similar to the two-tier structure previously described. The issues and regulations are similar to the general securitisation structure in double SPE structure securitisations, but the titling trust may require additional analysis compared to the other entities in the structure, for the purposes of the Investment Company Act exemption. Master Trust Structures These are typically used in dealer floor plan securitisations and credit card securitisations. The credit from the master trust is revolving in the sense that as the dealer inventory is sold or the credit card customer repays their balance, as applicable, funds are paid to the master trust. These funds are used to service interest and principal on the issued securitisation notes and are otherwise available to acquire new receiva - bles or loans, as applicable. The structure allows for multiple series of securi - ties to be issued that all share in assets of the master trust. Each series of notes typically has a revolving period during which no principal is paid on the notes, with the notes paying down once the amortisation period starts. The structure also allows for some series to be in their revolving period while other series are in their amortisation period. The master trust receives the proceeds from the repaid loans and uses these in part to pay interest and principal on the issued notes.
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