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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.)

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.


Highly-Leveraged Transactions (HLTs).  Office of the Director of the Division of Bank Supervision, BL-21-89, May 10, 1989.

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