Recent comments by Office of the Comptroller of the Currency (OCC) head Joseph Otting seem to have sealed the fate of the US leveraged lending guidelines, which were introduced by the organization he leads, the Fed and the Federal Deposit Insurance Corporation in 2013.
Those guidelines provoked uproar in the market when they were first mooted, but were grudgingly adhered to by most banks.
They stated that a leverage level of six-times total debt to ebitda was of concern and that transactions should not be undertaken where the borrower has a total debt greater than four times ebitda or the ratio of senior debt to ebitda is greater than three times.
But speaking at the SFIG Vegas conference at the end of February, Otting stated that “institutions should have the right to do the leveraged lending that they want, as long as they have the capital and personnel to manage that and it doesn’t impact their safety and soundness”.
He said: “When the [idea of the] guidance came out – it was like people were afraid to jump over the line without feeling the wrath of Khan from the regulators.
