H.R. 4167, Restoring Proven Financing for American Employers Act

H.R. 4167

Restoring Proven Financing for American Employers Act

Sponsor
Rep. Andy Barr

Date
April 29, 2014 (113th Congress, 2nd Session)

Staff Contact
Policy

Floor Situation

On Tuesday, April 29, 2014, the House will consider H.R. 4167, the Restoring Proven Financing for American Employers Act, under a suspension of the rules.  H.R. 4167 was introduced on March 6, 2014 by Rep. Andy Barr (R-KY) and was referred to the Committee on Financial Services, which ordered the bill reported, as amended, by a vote of 53-3.

Bill Summary

H.R. 4167 amends Section 13(g) of the Bank Holding Company Act of 1956 to clarify that nothing in Section 13(g) shall be construed to require the divestiture of any debt securities of collateralized loan obligations (CLOs), prior to July 21, 2017, if such CLOs were issued before January 31, 2014.  Moreover, this legislation clarifies that a banking entity shall not be considered to have an ownership interest in a CLO because it acquires or retains a debt security in the CLO, if the debt security has no indicia of ownership other than: 1) the right of the banking entity to participate in the removal for cause; or 2) in the selection of a replacement investment manage or investment adviser of the CLO.

H.R. 4167 defines the term “collateralized loan obligation” to mean any issuing entity of an asset-backed security as defined in Section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), that is comprised primarily of commercial loans.  Finally, this legislation defines the conditions of “removal for cause” to be: 1) a breach of a material term of the applicable management or advisory agreement (or the agreement governing the CLO); 2) the inability of the investment manager or investment adviser to continue to perform its obligations under any such agreement; or 3) any other action or inaction by the investment manager or investment adviser that has or could be expected to have a materially adverse effect on the CLO.

Background

Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known more commonly as the “Volcker Rule,” prohibiti U.S. bank holding companies and their affiliates from engaging in proprietary trading, as well as sponsoring hedge funds and private equity funds.[1]  The final Volcker Rule approved by five Federal regulators on December 10, 2013[2], would force many banks, of all sizes, that own interests in CLOs to divest them on or before July 21, 2105.  The CLO divestment will disrupt a market for business loans that have provided financing to companies such as Sears, JC Penny, DollarGeneral, Rite Aid, Regal Cinema, JCrew, Michael’s Craft Stores, Tempurpedic, Delta Airlines, and American Airlines.   In addition, the historic default for CLOs is less than 1% H.R. 4167 would allow CLO investments to be permissible under the Volcker Rule’s covered funds defintion and not force banks to divest of these debt securities issued before January 31, 2014.

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[1] Financial Services Committee Majority Staff, Memorandum: Full Committee Hearing Entitled ‘The Impact of the Volcker Rule on Job Creators, Part II’ (Jan. 31, 2014), p. 1.
[2] The five regulators are the Board of Governors of the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.

Cost

A CBO cost estimate is currently unavailable.

Additional Information

For questions or further information contact the GOP Conference at 5-5107.