The $2.5 trillion syndicated loan market has been on edge for nearly two years thanks to an appellate case that could expose some of these private deals to new scrutiny under state and federal securities regulations. Law firm alerts have gone so far as to call the appeal an “existential threat” to the entire syndicated loan market.
that under 2nd Circuit precedent, it’s clear as a matter of law that the loan notes are not securities.from business groups including the Loan Syndications and Trading Association and the Securities Industry and Financial Markets Association. The groups said that defining the Millennium notes as securities would “upend the settled expectations of borrowers and lenders and wreak havoc in the vitally important market for syndicated loans.
The SEC unquestionably treated the 2nd Circuit’s order as an opportunity to provide important guidance. In ato extend the deadline for its amicus filing, the SEC said it had met with Deputy Solicitor General Malcolm Stewart of the U.S. Justice Department, who advised that the question posed by the 2nd Circuit would require consultation with other federal agencies. The SEC also said it wanted to hear from counsel for the trustee and for the banks.
I should say here that the SEC and JPMorgan declined to comment. Christopher Johnson of McKool, who argued at the 2nd Circuit for the trustee, declined to provide a statement about the SEC’s position, or lack thereof. On the other hand, any remaining uncertainty will be resolved as soon as the 2nd Circuit issues a ruling. If the appeals court eventually decides that the trial judge correctly applied its precedent from the 1992 case , then the SEC’s silence will look like a minor blip.
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