[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3772 Introduced in House (IH)]

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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 Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Expanding Proven Financing 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:
            ``(7) Requirements for qualified collateralized loan 
        obligations.--
                    ``(A) Risk retention requirement.--Notwithstanding 
                any other provision of this section, as of the 
                effective date set forth in subsection (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 subsection 
                (c)(1)(C)(ii), holding (without hedging or otherwise 
                transferring the credit risk), of securities of the 
                collateralized loan obligation with the value of not 
                less than 5 percent of the 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 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, 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 
                                participation or any interest related 
                                to or in a letter of credit, or 
                                entering into derivative transactions 
                                to hedge interest rate or currency rate 
                                mismatches;
                                    ``(IV) not purchase assets in 
                                default, margin stock, or equity 
                                convertible securities;
                                    ``(V) acquire only loans held or 
                                acquired by three or more investors or 
                                lenders unaffiliated with the manager;
                                    ``(VI) hold only loans to borrowers 
                                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 
                                covenant lite loans, except that each 
                                asset shall require the disclosure of 
                                unaudited financial statements 
                                quarterly within 60 days of the end of 
                                the quarter and audited financial 
                                statements annually within 120 days of 
                                the end of the fiscal year; and
                                    ``(VIII) at the time of purchase of 
                                any asset, comply with the requirements 
                                of subclauses (I) and (VII) and clause 
                                (ii) of this subparagraph, or, if not 
                                in compliance with any such 
                                requirement, maintain or improve the 
                                level of compliance after giving effect 
                                to such purchase.
                            ``(ii) Asset portfolio protections.--
                                    ``(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 
                                industry.
                            ``(iii) Structural protections.--
                                    ``(I) The collateralized loan 
                                obligation's equity shall be at least 8 
                                percent 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 obligation 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.
                            ``(iv) Requirement to maintain alignment of 
                        manager and investor interests.--
                                    ``(I) The collateralized loan 
                                obligation shall be an open market 
                                collateralized loan obligation.
                                    ``(II) The holders of the equity of 
                                the collateralized loan obligation 
                                (excluding 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 manager's 
                                fees, including any incentive fee, 
                                shall be subordinated to payments then 
                                due in relation to the collateralized 
                                loan obligation's debt securities.
                                    ``(IV) 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 30 percent of the principal amount 
                                of the assets of the collateralized 
                                loan obligation (other than sales of 
                                defaulted or credit-deteriorated, 
                                credit-risk, or credit-improved 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 requirements.--
                                    ``(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 
                                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 includes information 
                        regarding--
                                    ``(I) a list of assets of the 
                                collateralized loan obligation, 
                                including, with respect to each asset, 
                                the obligor 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 balance and aggregate 
                                adjusted collateral principal amount 
                                (adjusted as required by the 
                                collateralized loan obligation 
                                governing transaction documents) and 
                                the percentage of such aggregate 
                                adjusted collateral principal 
                                represented by each asset;
                                    ``(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 
                                defaulted asset as defined in the 
                                related transaction documents.
            ``(8) Definitions for purposes of paragraph (7).--For 
        purposes of paragraph (7), the following definitions apply:
                    ``(A) Balance sheet collateralized loan 
                obligation.--The term `balance sheet collateralized 
                loan obligation' means a collateralized loan 
                obligation--
                            ``(i) whose assets consist predominantly 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
                                    ``(III) from a collateralized loan 
                                obligation in existence as of the 
                                effective date of this paragraph that 
                                is not a balance sheet collateralized 
                                loan obligation; and
                            ``(ii) the assets and liabilities of which 
                        are, immediately after issuance of its asset-
                        backed securities in a securitization 
                        transaction, included under generally accepted 
                        accounting principles in the consolidated 
                        balance sheet of one or more of its affiliates.
                    ``(B) Collateralized loan obligation.--The term 
                `collateralized loan obligation' means any issuing 
                entity of an asset-backed security, as defined in 
                section 3(a)(79) of the Securities Exchange Act of 1934 
                (15 U.S.C. 78c(a)(79)), that is comprised primarily of 
                commercial loans.
                    ``(C) Covenant lite loan.--The term `covenant lite 
                loan' means, at the time the collateralized loan 
                obligation enters into a commitment to acquire such 
                loan, a loan for which the underlying instruments 
                neither--
                            ``(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 
                        maintenance 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 covenant 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 common stock) and any additional 
                class(es) of securities junior to the collateralized 
                loan obligation's debt securities.
                    ``(E) 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 documents.
                    ``(F) Open market collateralized loan obligation.--
                The term `open market collateralized loan obligation' 
                means a collateralized loan obligation--
                            ``(i) whose assets consist predominantly of 
                        senior, 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 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 transaction 
                        in which a seller offers senior, secured 
                        syndicated loans to prospective purchasers in 
                        the loan market on market terms on an arm's 
                        length basis, which prospective purchasers 
                        include, but are not limited to, entities that 
                        are not affiliated with the seller; or
                            ``(ii) a reverse inquiry from a prospective 
                        purchaser of a senior, secured syndicated loan 
                        through a dealer in the loan market to purchase 
                        a senior, secured syndicated 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 
                        require the payment of principal and interest, 
                        an investor that is a qualified purchaser, 
                        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 investment company 
                                under the Investment Company Act of 
                                1940--
                                            ``(aa) a qualified 
                                        purchaser;
                                            ``(bb) a knowledgeable 
                                        employee, within the meaning of 
                                        Rule 3c-5 promulgated under the 
                                        Investment Company Act of 1940; 
                                        or
                                            ``(cc) an entity owned 
                                        exclusively by such a qualified 
                                        purchaser or knowledgeable 
                                        employee; or
                                    ``(II) if the qualified 
                                collateralized loan obligation relies 
                                on Rule 3a-7 promulgated under the 
                                Investment Company Act of 1940 for its 
                                exclusion from the definition of 
                                investment company under that Act and 
                                such securities are not fixed-income 
                                securities, as defined in such rule--
                                            ``(aa) a qualified 
                                        institutional buyer, within the 
                                        meaning of Rule 144A under the 
                                        Securities Act of 1933;
                                            ``(bb) a person (other than 
                                        any rating organization rating 
                                        the issuer's securities) 
                                        involved in the organization or 
                                        operation of the issuer or an 
                                        affiliate of such a person, as 
                                        defined in Rule 405 under the 
                                        Securities Act of 1933; or
                                            ``(cc) any entity in which 
                                        all of the equity owners are 
                                        such qualified institutional 
                                        buyers as described in item 
                                        (aa) or persons described in 
                                        item (bb).''.
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