The private equity industry's lobbying group met officials
from the Office of the Comptroller of the Currency and the Federal Reserve last
week to address concerns over a crackdown on junk-rated loans. The private meeting - the first between the Private
Equity Growth Capital Council (PEGCC) and the U.S. regulators over the issue -
underscores many buyout firms' reliance on leveraged loans for outsized returns
in their debt-fueled acquisitions of companies.
It also highlights the willingness of the OCC and the Fed to
engage with parties they do not regulate. Private equity firms are typically
regulated by the U.S. Securities and Exchange Commission. The PEGCC sought and
received assurances from the OCC and the Fed that regulators have not been
targeting the private equity industry in their efforts to prevent excesses in
leveraged lending.
The OCC and the Fed also told the PEGCC that they were not
being inflexible in their application of the lending guidance, which was issued
last year. The regulators are also working on providing follow-up guidance to banks.
The meeting comes as the leveraged finance industry
awaits the outcome of an annual review of banks' loan books that took
place earlier this summer. Regulators have warned that underwriting standards
have deteriorated, though bankers say they expect the review's findings to be
in line with last year's.
Lending for U.S. leveraged buyouts totaled $46.9 billion in
the first half of 2014. It reached $90.5 billion in 2013, the highest level
since 2007, according to Thomson Reuters Loan Pricing Corp.
A small number of PEGCC's members are alternative asset
managers that have direct lending divisions which could benefit from a
regulatory crackdown on the leveraged lending businesses of Wall Street banks.
Asked about the impact of the leveraged lending guidance on
KKR, Scott Nuttall, head of KKR's global capital and asset management group,
told analysts last month the firm stood to benefit on the credit investment
side while it would withstand any retrenchment of banks on the private equity
side.
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