June 3, 2024/IOSCO
IOSCO today published its Final Report: Leveraged Loans and Collateralised Loan Obligations (CLOs) Good Practices for Consideration.
IOSCO has been following the evolution of the Leveraged Loans and CLO markets, including significant shifts in market practices that emerged during the ‘low-for-long’ interest rate environment. In its analysis IOSCO has focussed on examining the impact of fewer and looser covenants on investor protections, whether there is adequate transparency in these markets and the scope for potential conduct-related issues to arise.
The Final Report describes in detail 12 Good Practices which are designed to support market participants in their decision-making when operating in these markets, and which are grouped into five themes:
- Origination and refinancing based on a sound business premise;
- EBITDA and loan documentation transparency;
- Strengthening alignment of interest from loan origination to end investors;
- Addressing interests of different market participants throughout the intermediation chain; and
- Disclosure of information on an ongoing basis.
The Final Report reflects the results of the public consultation launched on 14 September 2023 which received valuable feedback from stakeholders.
James Andronis, Chair of the IOSCO Committee on Regulation of Market Intermediaries (Committee 3), said: “While these measures will provide further support on the usage of existing industry best practices guides, they will also be of great help to jurisdictions that may be looking to develop or expand into these markets”.
Christina Choi, Chair of the IOSCO Committee on Investment Management (Committee 5), said: “These Good Practices are a set of important tools which will help mitigate the vulnerabilities identified during our work, particularly the possible conduct and conflicts of interest risks observed across the intermediation chain. I encourage market participants to embrace them when operating in the leveraged loans and collateralised loan obligations markets”.
