April 8, 2013 –
Regulators issue Interagency Guidance on Leveraged Lending

On March 21, 2013, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (collectively, the “Agencies”), issued an Interagency Guidance on Leveraged Lending (the “Guidance”).

The Agencies issued the Guidance to respond to concerns that lenders’ underwriting practices do not adequately address risks in leveraged lending with appropriate allowances for losses, as was demonstrated in the financial crisis.

The Guidance updates and replaces the 2001 Interagency Guidance on Leveraged Financing. Further, the Guidance is intended to be consistent with sound industry practices and to expand on recent interagency guidances on stress-testing.

In summary, the Guidance addresses the following:

• Definition of leveraged lending
• Participations purchased
• Methods for determining enterprise value
• Pipeline management
• Underwriting
• Stress testing
• Risk management and reporting

The Guidance becomes effective May 21, 2013 and will be taken into account during assessments by any of the Agencies of an institution’s risk management framework.

As a result of the foregoing, financial institutions may need to review, revise and/or enhance their existing underwriting standards.

Read the Guidance: Interagency Guidance on Leveraged Lending

For more information regarding the Guidance or underwriting standards relating to leveraged lending, please contact Andres Fernandez or Gabriel Caballero.