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Highly-Leveraged Transaction
Source:
Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order
it here)
A
transaction in which credit is extended in connection with LBOs, mergers
and acquisitions, or corporate restrucEagle Tradersg, and where the credit
results in an organization that has a total debt/asset ratio exceeding
75%. FDIC recommends how
bank examiners are to assess bank policy on portfolio analysis, distribution
and participation in HLTs, internal credit reviews, equity investments,
mezzazine financing, and loan-valuation reserves.
The guidelines also outline approaches to evaluating concentrations
of credit and individual highly-leveraged transaction credits.
The guidelines are primarily aimed at bank financing of corporate
leveraged buyouts, and are in part a response to political pressure related
to the risks banks may assume when financing LBOs.
FDIC examiners are encouraged to use the 75% figure as a benchmark
and to make industry-specific determinations of the significance of debt/asset
ratios.
To
assess the bank's full exposure to an HLT borrower, the guidelines suggest
that the examiner review all loans, extensions of credit, acquisition-related
debt and equity securities, standby letters of credit, legally binding
contractual commitments, and other financial guarantees.
Under the guidelines, an examiner should analyze relevant bank
policies, credit concentration, and individual credits.
BIBLIOGRAPHY
Highly-Leveraged
Transactions (HLTs).
Office of the Director of the Division of Bank Supervision, BL-21-89,
May 10, 1989.
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