In this OnPoint we summarise the European Commission's recent legislative interpretation of the "originator" definition under EU Securitisation Regulation and consider the potential impact on European and US CLOs. Based on that interpretation, retention holders will no longer be able to use conditional sale agreements to "season" assets and qualify as originators under the EUSR, which upends widespread and longstanding market practice for European and EUSR-compliant US CLOs. Originators currently relying on conditional sale agreements to qualify under "limb (b)" of the EUSR originator definition should consider their compliance position, particularly in relation to transactions that have priced but not closed.
On August 8, 2025, the European Banking Authority (the "EBA") published its response to a question from 2021 as to whether an entity that manages and establishes a securitisation can be classified as an "originator"1 (and, consequently, an eligible risk retainer) under the EU Securitisation Regulation (Regulation (EU) 2017/2402, as amended) (the "EUSR") by entering into a conditional sale agreement with a CLO issuer.2
The EBA response, which was published as part of its Single Rulebook Q&A (the "Q&A"), was prepared by the European Commission (the "Commission") and states that:
"[i]f an entity has not purchased the assets but has entered into a conditional sale agreement with the SSPE whereby the entity is obliged to acquire relevant assets from the SSPE, such entity does not qualify as an originator and therefore cannot fulfil the risk retention requirement on this basis."
While the Q&A response does not provide any further reasoning for the Commission's conclusion, one of their key concerns with conditional sale arrangements appears to be that the retention holder only acquires the relevant assets if a default occurs under the terms of the conditional sale agreement, and so does not 'purchase' such assets as required under limb (b) of the definition of originator above.
Although there are other means by which a retention holder can qualify as an originator for purposes of the EU Securitisation Regulation, conditional sale agreements have frequently been used to satisfy limb (b) of the originator definition. Under a CLO conditional sale agreement, the relevant retention holder commits to the CLO issuer to purchase for its own account any assets that become ineligible for inclusion in the CLO collateral pool during a specified period of time prior to the CLO closing date (the "Seasoning Period"). The conditional sale agreement, which applies to a sufficient amount of "originated assets" to allow the retention holder to satisfy the minimum required threshold, exposes the retention holder to the credit risk of the relevant assets during the Seasoning Period and avoids having to transfer and settle loans multiple times between the retention holder and the CLO issuer.
For a CLO manager using the so-called "originator-manager" approach (an "Originator Manager"), the EUSR does not require a specific amount of originated assets, but market practice is for the CLO manager to retain exposure to loans that are acquired by the CLO issuer equal to 5 to 10% of the target par amount during the Seasoning Period. For third party originators, the EUSR requires the originator to retain exposure to more than 50% of the outstanding principal amount of all underlying collateral assets acquired or committed to be acquired by the CLO issuer.
The EUSR does not mandate a particular Seasoning Period, although in most CLOs the market practice has been to season for between 15 days and 15 business days.
Forward Purchase Arrangements
Unlike a conditional sale agreement, a forward purchase arrangement provides for the sale of the relevant assets from the originator to the CLO issuer on a forward basis as long as they have not become defaulted during the specified Seasoning Period. If any assets default during the Seasoning Period, they will be retained or reacquired by the originator. The originator is typically entitled to retain any interest paid during the period prior to the onward sale to the CLO issuer and the sale price payable by the CLO issuer is generally the same as the price paid by the originator. Under this arrangement, the originator is exposed to default and credit risk on the relevant assets for the period prior to the onward sale to the CLO issuer.
By utilizing netting arrangements or other tri-party structures, the originated assets can be settled directly with the CLO issuer once the forward sale has occurred. As this construct involves the actual purchase and sale of assets (as opposed to a contingent arrangement under a conditional sale agreement), a forward purchase arrangement is consistent with the Commission's interpretation of the originator definition under the EUSR.
Grandfathering
There is no indication in the Q&A that the Commission's belated interpretation is intended to apply only to new CLOs. The Q&A response purports to be a "clarification" by the Commission of existing law, which means that the position set out in that response doesn't constitute new regulatory guidance. This is despite the fact that its position diverges from what is acknowledged to be widespread and long-standing market practice.
Originators for priced (but not closed) and existing CLOs will need to consider their position in respect of the seasoning of originated assets in each of their transactions on a case-by-case basis. In some circumstances, an originator may be able to satisfy limb (a) of the originator definition on the basis of their involvement in the creation of new issue assets acquired by the CLO. Otherwise, originators can enter into forward purchase arrangements to season new assets or re-season assets currently held by a CLO warehouse or an existing CLO. With regard to re-seasoning, consideration will have to be given to any applicable regulatory limitations as well as the appropriate Seasoning Period and the amount of originated assets to be re-seasoned.
Whether or not re-seasoning is advisable for existing transactions depends in part on the contractual and regulatory position of the retention holder. In US CLOs, the contractual obligations of the retention holder under the EUSR are typically derived from the regulatory requirements and guidance in existence as of the CLO closing date. Since the EUSR is not directly applicable to the vast majority of originators in US CLOs, retention holders are only required to comply with their contractual obligations and therefore will generally not be required (contractually or otherwise) to make adjustments to existing transactions. In European CLOs, retention holders will need to consider whether their contractual and regulatory obligations necessitate changes to mitigate the impact of the Commission's interpretation.
Impact on the US risk retention rules
As a result of the 2018 lawsuit brought by the Loan Syndications and Trading Association (the "LSTA") against the Securities and Exchange Commission and the Board of Governors of the Federal Reserve System, collateral managers of "open market CLOs" (i.e., CLOs in which assets are acquired from "arms-length negotiations and trading on an open market") do not have to comply with the credit risk retention requirements of Section 941 of the Dodd-Frank Act (the "US Risk Retention Rules").
In our view, while not free from doubt, an Originator Manager approach to compliance with the EUSR risk retention rules using forward purchase arrangements to season the relevant originated assets would not preclude a CLO manager from relying on the court's opinion and avoiding compliance with the US Risk Retention Rules. The acquisition by an Originator Manager of the small minority of assets it holds for its own account during the Seasoning Period for purposes of EUSR compliance is arguably outside the type of activity that the court in the LSTA ruling determined does not fall under the scope of the statute.
We note, however, that if a CLO manager or other retention holding entity was acquiring and then transferring a significant portion of the assets to the CLO issuer (e.g., more than 10-15% of the assets to be securitized), a different conclusion could be reached regarding the obligation to comply with the US Risk Retention Rules, depending on the facts and circumstances of the transaction. In addition, given that there is no formal guidance on this threshold, an Originator Manager can always opt to remove any uncertainty by complying with the US Risk Retention Rules.
Conclusion
Given the broad impact on the CLO market and established market practice as a consequence of the Commission's recent interpretation, it is hoped that the Commission and the EBA will act promptly to engage with market participants, clarify the position in respect of existing CLOs and facilitate an orderly transition to compliance with the revised originator requirements. For more information or to discuss how this interpretation may impact any of your existing or future U.S. or EU CLOs, please feel free to contact us.
Footnotes
1 The EU Securitisation Regulation defines an "originator" as an entity which either: (a) itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised; or (b) purchases a third party's exposures on its own account and then securitises them.
2 See https://www.eba.europa.eu/single-rule-book qa/qna/view/publicId/2021_5851.
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