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LSTA Newsletter: July 12, 2019

This week we cover 1H19 Review…Primary, Secondary & Sustainable Finance (and Bonus Litigation Finance)

1H19 Market Review: Quieter Loans, Revving Bonds

In the past year, one might have noticed a certain alarmist tone in the press’s coverage of leveraged lending. Commentators have pointed to potential overheating, overleveraging (or, at least, overgrowth) of the loan market. We’ll acknowledge that leverage is higher and documents are looser. But we’d also gently recommend that commentators consider i) a data-based analysis of 2019 versus 2018 and ii) an apples-to-apples comparison to bonds. The real story is – as it often is – a bit more nuanced.

Leveraged Lending: Regs & Stats

The past week has brought two notable research pieces on the state of credit. First, last Friday, saw the release of the Shared National Credit (SNC) Review, which discusses risks in the syndicated loan market. Second, this week, Covenant Review compared the credit stats of the largest LBOs of 2007, 2017 and 2018. We dissect both reports below.

On Leveraged Lending: Original Sources

Reports continue to appear about regulators opining on the leveraged loan market. And so, we once again go to the original sources to see what they are saying. We began this process in December, when we recapped views from the OCC Semi-Annual Risk Assessment and the Federal Reserve’s Financial Stability Report, as well as speeches and comments from Fed Chairman Powell, Vice-Chairman Quarles and Comptroller Otting.

Leveraged Lending: From the Regulators’ Mouth(s)

There have been a flurry of news stories recently on the regulators’ views on leveraged lending and systemic risk. Being curious (and determined) folk, instead of simply reading the news, we went to the original sources; we drilled into the actual speeches and the supporting documents to see exactly what the regulators said about credit risk (the risk of default and loss) and systemic risk (the risk that the financial system suffers a shock and freezes). Their views are rather more nuanced than the headlines.

Rumors of the Guidance’s Death Have Been Greatly Exaggerated

Since the Comptroller of the Currency spoke at Las Vegas in February, rumors have been flying that Leveraged Lending Guidance is dead. In fact, it is not. Below, we discuss what the Comptroller said in his speech as well as recap what we’ve heard – from very good sources – about the future of the Guidance.

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