New snc loan review to begin in february

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U.S. regulators are slated to begin in February the first of two annual reviews of large syndicated loans as they seek to further curb risky lending, sources said. The Federal Reserve (Fed), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp (FDIC) are increasing the frequency of their assessment of loan underwriting standards, known as the Shared National Credit (SNC) review, as banks arrange fewer credits but regulators warn there is still room for improvement. A second SNC review, which analyzes any loan or loan commitment of at least $20 million that is shared by three or more supervised institutions, will take place later in 2016, sources said. It previously was conducted once a year, typically during May and June. One report will be released later in the year. Regulators have sought to limit risky lending in the $870 billion leveraged loan market, which provides financing to companies to back acquisitions including JAB Holding Co's purchase of single-serve coffee maker Keurig Green Mountain, by ratcheting up the scrutiny of banks' underwriting. Established in 1977, the SNC review took on increased importance following the release in 2013 of updated Leveraged Lending Guidance where regulators noted volumes of loans to highly indebted companies, known as leveraged loans, had increased and prudent lending practices had decreased. In the guidance, the regulators noted that certain lending characteristics were "aggressive" and flagged loans with little or no lender protections, known as covenants, and debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratios, or leverage, of more than 6.0 times. They also said at least 50 percent of a company's total debt should be able to be repaid within five to seven years.

An OCC spokesperson, a Fed spokesperson and an FDIC spokesperson all declined to comment. FUNDING CHALLENGE In efforts to reduce potential systemic risks, regulators in the last three years have increased pressure on the U.S. leveraged loan market and the result has been less loan volume and, on average, lower leverage for buyouts.

There was $294.5 billion of U.S. institutional loans issued in 2015, down from $639.4 billion in 2013, according to Thomson Reuters LPC data. Total leverage for large U.S. corporate buyouts in 2015 was 5.96 times compared to 6.18 times in 2013, according to the data. In the fourth quarter of 2015, 76 percent of institutional loans issued were covenant-lite, compared to 59 percent in the first quarter of 2013 when the guidance was issued, according to LPC data. Amid record low oil prices, concerns about China and volatility in the equity markets, lending institutions are sitting on debt commitments, including loans to back Dell's purchase of EMC Corp.

The banks are also stuck with some buyout loans, initially offered to investors in 2015, that they were forced to shelve on their balance sheets as demand dropped when market conditions deteriorated. Among the credits waiting in the wings is the financing to back the biggest leveraged buyout of 2015, Carlyle Group's purchase of data storage unit Veritas from antivirus software maker Symantec Corp. The backlog of unsold debt may raise additional questions during the upcoming review when regulators' examine loan underwriting. The 2015 SNC reviewed 667 leveraged loans with $624.3 billion in commitments and found that the number of loans originated with potential weaknesses fell. After the issuance of a frequently-asked-questions document "for implementing the March 2013 Interagency Guidance on Leveraged Lending, the volume of non-pass leveraged loans declined sharply," according to the 2015 SNC report. "However, weak underwriting continues to be found in leveraged loans."

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