Court sides with Wall Street on landmark lending case
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Illustration: Brendan Lynch/Axios
Syndicated loans are not securities, according to a federal appeals court ruling yesterday in New York City.
Why it matters: This is a validation of the status quo, but nonetheless a huge win for Wall Street lenders who've been steadily losing market share to private credit.
- Had the court ruled differently, it could have turned the sea change into a tsunami.
Backstory: The original case was brought by buyers of a $1.7 billion syndicated loan for Millennium Health, a drug-testing company that one year later went bankrupt and defaulted on the loan.
- As Axios wrote in March: "What those lenders apparently hadn't known was that Millennium for years had been under government investigation for Medicare fraud. The banks, however, first became Millennium lenders back in 2012 and allegedly were in the loop. Moreover, investors allegedly weren't informed of material developments in a civil case where Millennium was the defendant."
- A lower court effectively ruled that the banks didn't violate securities law because syndicated loans aren't securities.
- Now that ruling has been affirmed by the appeals court.
Intrigue: The appeals court earlier this year had asked the SEC to provide an opinion on whether or not syndicated loans are securities but, after several months of delay, the regulator punted.
- This suggests that Gary Gensler doesn't plan to further regulate the syndicated market, despite entreaties from some in Congress and outside interest groups.
Read the full opinion:
