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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