Large Bank Supervision Forum 2023
The 2013 Interagency Guidance on Leveraged Lending
KEY ELEMENTS OF THE 2013-14 GUIDANCE FOR COMMUNITY / REGIONAL BANKS
Leveraged lending definition Credit policy expectations Underwriting standards and credit analysis Enterprise valuations Reporting and analytics Risk rating expectations Ongoing portfolio management processes Independent credit review Stress testing
For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.
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Interagency Guidance | A Review of Key Guidelines
Leveraged Loans (excluding ABL tranches) will generally have two sources of repayment – Cash Flow and Enterprise Value (refinance/recap; sale; offering ) Leveraged Cash Flow Senior Debt to EBITDA –Max of 4X* Total Debt to EBITDA – Guideline max of 6X EBIDTA Adjustments, Pro-Forma Analyses, Sensitivity Analyses Amortization (from cash flow or pro-forma analyses) Companies must amortize or demonstrate amortization capability of 50% of total funded debt and 100% of senior debt in 5-7 years Enterprise Value – Tested quarterly to assure safety net Public companies -- Enterprise value is generally calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents Private companies -- EV for private companies is a subjective discipline that may involve multiple methodologies (e.g., discounted cash flows / capitalized cash flows, asset valuation and market-based valuation) depending on the quality of data, industries, available peer comparisons and transparency of transaction operating assumptions. *4X Senior Leverage is not specifically mentioned in the Guidance, but has emerged as a de facto guidepost among lenders
For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.
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