ECB Publishes Guidance On Leveraged Transactions

On 23 November 2016, the European Central Bank ("ECB") published draft guidance on leveraged transactions (the "Guidance") for public consultation. The consultation period will end at midnight on 27 January 2017, during which time banks, trade bodies and other interested parties may submit comments to the ECB. The Guidance follows similar guidelines which have been applicable to banks in the US since March 2013^[1].

Why Has This Guidance Been Published?

The backdrop to the Guidance is the strong recovery of the European leveraged finance markets since the financial crisis, resulting in increased competition between credit institutions for leveraged lending business and more borrower-friendly lending conditions in Europe, as shown by increased levels of indebtedness and the introduction of "covenant-lite" deal structures. The ECB is keen, therefore, to develop a clear and consistent definition of what constitutes a leveraged transaction and to rein in