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ARTICLE · 11 FEBRUARY 2020

FDIC Views On Leveraged Lending

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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The FDIC Fall 2019 edition of Supervisory Insights contained an article entitled "Leveraged Lending: Evolution, Growth and Heightened Risk".

United StatesFinance and Banking
Ann Kalodis
Ann Kalodis
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The FDIC Fall 2019 edition of Supervisory Insights contained an article entitled "Leveraged Lending: Evolution, Growth and Heightened Risk".

In the article, the FDIC noted that the credit agreement terms have continued to weaken since 2016.

Examples of the loosening of terms within credit agreements in recent years highlighted by the FDIC include:

  • Allowing borrowers to obtain additional debt without the current lender's approval
  • Reducing the utilization of financial maintenance covenants
  • Allowing borrowers to sell and purchase assets in the normal course of operations
  • Allowing cash to be used for dividends, investments, capital expenditures and other purposes before being included in excess cash flow calculations used to determine debt repayment obligations

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