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Us - Banks Search For Loopholes In Leveraged Loan Guidelines

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Wall Street banks are playing cat-and-mouse with U.S. regulators over rules that seek to reduce lending for deals that load up companies with too much debt, as they try to retain a profitable business and meet demands from clients and investors.

Leveraged lending is one of the most lucrative forms of loans for banks, giving Wall Street an incentive to accommodate borrowers as much as it can. Banks fees on U.S. junk-rated loans stand at $4.9 billion so far this year, a year-to-date record and up 10 percent from the same period last year, according to Thomson Reuters and Freeman Consulting data.

The guidelines, issued by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp in March last year, generally seek to restrict banks making loans in deals such as leveraged buyouts that would leave a company with debt levels that are more than six times its annual cash flow. Since the guidelines were issued, regulators have warned lending standards have in fact deteriorated.

As a result, banks are exploring whether they can arrange more of special kinds of bonds for companies that should not be taking on more loans under the guidelines, according to banking sources who spoke on condition that neither they nor the banks they work for or with are identified. These bonds would help to split the overall debt load between a holding company and its operating subsidiary. The guidelines are aimed at curbing risky loans and do not directly address bonds.

"There are a lot of smart, creative people out there that are looking for ways to both meet demand from borrowers and investors and satisfy regulators," said David Brittenham, chair of law firm Debevoise & Plimpton LLP's finance group.

Surely this should read clever people seek ways to make bets and get a govt bailout when they go wrong. Private property should be confiscated from the individuals when these leverage deals go wrong. I wonder how clever they would want to be then?

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  • 406 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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