LSTA and SIFMA Ask Treasury to Modify Requirements for Certified Deemed-Compliant Status for Certain Securitization Vehicles (with Mulcahy Description)

The Loan Syndications and Trading Association ("LSTA") and the Securities Industry and Financial Markets Association ("SIFMA") have submitted a joint letter to the U.S. Treasury Department and the IRS asking that certain technical corrections be made to the definition of "limited life debt investment entity" in the final regulations issued under FATCA.The final regulations provided transitional relief for certain securitization vehicles, including issuers of collateralized loan obligations ("CLOs"), which are labeled "limited life debt investment vehicles" ("LLDIEs") treating such vehicles as "Certified Deemed-Compliant FFIs" until January 1, 2017. Certified deemed-compliant FFIs do not have to register with the IRS or provide account information with respect to its U.S. Reportable Accounts. LSTA and SIFMA point out that the definition of LLDIEs in the final regulations is flawed in many respects, particularly n the requirement that the organizational documents of the vehicle do not permit amendments to such documents without the agreement of all of the investors. According to LSTA and SIFMA, most CLOs permit amendments without the agreement of all of the investors except in certain limited matters. As a result, most CLOs and other securitization vehicles will be unable to take advantage of the LLDIE exception in the current final regulations.

LSTA and SIFMA have recommended that securitization vehicles and CLOs formed primarily for purposes of investing in debt securities in existence as of December 31, 2013 be certified deemed-compliant if all payments made to investors in such vehicles (other than holders of de minimis interests) are cleared through a clearing organization that is a participating FFI, reporting Model 1 FFI or a U.S. financial institution or made through a trust, fiscal agent, custodian or similar paying agent that is a participating FFI, reporting Model 1 FFI or U.S. financial institution. The two groups also requested that certified deemed-compliant status continue until a LLDIE is liquidated rather than terminating on January 1, 2017.

LSTA and SIFMA have also suggested changes to Annex I and II to the Model 1 Intergovernmental Agreement currently being negotiated between the United States and the Cayman Islands.

View joint letter in full here (Cabinet link). View Bio / [email protected].