Horizontal Risk Retention (HRR)
Asset-Backed Securities glossary · Regulatory, Syndication & Live Deal Processing
Definition
Sponsor retains the most subordinate 5% of the capital structure (the residual / equity); another permitted Dodd-Frank retention form.
Horizontal Risk Retention (HRR) in plain English
When a bank bundles loans into bonds and sells them, regulators (through a law called Dodd-Frank) force the bank to keep 'skin in the game' — usually 5% — so it can't dump all the risk on buyers and walk away. Horizontal risk retention is one way to do that: the bank keeps the very bottom slice, the part that absorbs the first losses if borrowers don't pay. Picture the deal as a stack of buckets under a leak — the bottom bucket gets wet first. By holding that riskiest 'residual' or 'equity' piece, the bank feels the pain first if the loans go bad, which keeps it honest about only bundling decent loans.
Also called: HRR
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