United States: What's Next For The Leveraged Lending Guidance?

With the US Government Accountability Office's ("GAO's") letter ruling on Oct. 19, 2017 that the 2013 Interagency Guidance on Leveraged Lending (the "Leveraged Lending Guidance") constitutes a "rule" for purposes of the Congressional Review Act (the "CRA"), participants in the leveraged lending markets are inquiring as to what the current status of the Leveraged Lending Guidance is and what the likely procedural next steps under the CRA will be.  Set forth below is discussion of these issues.

Is the Guidance Still Legally Binding?

The CRA provides that no rule can take effect unless the agency promulgating the rule submits a report (a "Rule Report") to the House, the Senate and the Comptroller General's Office containing the rule, a description thereof and a statement as to whether it is a "Major Rule."  (A "Major Rule" is one that has had or would likely result in: an annual effect on the economy of $100 million or more; a major increase in costs or prices for consumers, individual industries, government agencies or regions; or a significant adverse effect on competition, employment, investment, productivity, innovation or the ability to compete with foreign-based enterprises). Prior to Oct. 19, 2017, no Rule Report had been submitted with respect to the Leveraged Lending Guidance. This might seem to be the end of the analysis, but it is not. In the past, the Senate has accepted the publication of GAO letter rulings in the Congressional Record as sufficient to initiate the period in which to introduce a joint resolution of disapproval in lieu of a conforming Rule Report. On Oct. 19, 2017, Sen. Patrick Toomey (R.PA.) directed that the GAO letter ruling be published in the Congressional Record.

The next issue that needs to be determined is whether the Leveraged Lending Guidance/rule is a "Major Rule". To our knowledge, no authority has publicly expressed a view on this. If it is a "Major Rule", the rule cannot become effective until, at the earliest, 60 days after the GAO letter ruling is published in the Congressional Record. If it is not a Major Rule, it would go into effect otherwise in accordance with its terms, and in the case of the Leverage Lending Guidance/rule, would simply continue to remain in effect.

The intricacies of the CRA are interpreted by Congress alone; the CRA states that: "[N]o determination, finding, action, or omission under this chapter shall be subject to judicial review."

The Senate staff we have spoken to are of the view that the Leveraged Lending Guidance remains legally binding, as Sen. Toomey's action satisfied the requisite filing of a Rule Report for a rule to become (or remain) effective. They are also of the view that Leveraged Lending Guidance will be presumed to not be a Major Rule. (These views were not presented to us as necessarily being the views of the Senate or the House as whole or of a majority of the respective members thereof.)

What Are the Next Steps Under the CRA?

Sen. Toomey's publication of the GAO letter ruling in the Congressional Record has triggered a period of "60-days-of-continuous session" during which any senator or representative may file a joint resolution of disapproval of the Leveraged Lending Guidance. (Days-of-continuous-session periods count every calendar day, including weekends and holidays, and exclude only days that either chamber (or both) is gone for more than three days pursuant to an adjournment resolution). If a joint resolution of disapproval is filed during the allowed time period, it must be approved by both houses of Congress during the life of the current two-year Congress. As of this writing, we are not aware of any joint resolution of disapproval of the Leveraged Lending Guidance being submitted to either house of Congress.

While there is no "fast track" procedure for the consideration of a joint resolution of disapproval in the House, there are "fast track" procedures in the Senate. During the 20-calendar-day period after publication in the Congressional Record, if a joint resolution of disapproval is submitted in the Senate, the joint resolution can be discharged from committee by a petition signed by at least 30 senators. Once the joint resolution is discharged or reported out of committee, any senator may make a motion to call the joint resolution of disapproval for consideration. No debate is allowed on this motion; and if it is approved, the joint resolution of disapproval may be subject to no more than 10 hours of debate before being voted on.

If a joint resolution of disapproval is approved by both houses of Congress, it is sent to the president for signature or veto (subject to customary override procedures).

If a joint resolution of disapproval were to be enacted, the Leveraged Lending Guidance would "be treated as though such rule had never taken effect" and "may not be reissued in substantially the same form."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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