Client Alert

Federal Banking Agencies Propose New Guidance on Leveraged Finance

May 15, 2012


On March 26, 2012, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (collectively, the Agencies) jointly issued for comment proposed new leveraged lending guidance, to be applicable to substantially all financial institutions regulated by the Agencies, that would replace the existing guidance issued in April 2001. The Agencies note that as the leveraged finance market has grown:

  • debt agreements have frequently included features that provide relatively limited lender protection, including covenant-lite and PIK-toggle features

  • capital structures and repayment prospects for some transactions have at times been aggressive in light of the overall risk of the credit

  • the pipeline of aggressively priced and structured commitments has grown rapidly

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