Exclusive:
Private equity seeks assurances from U.S. regulators
over loans
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[August 12, 2014]
By Greg Roumeliotis
(Reuters) - 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, people familiar with the
matter said on Monday. |
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
sources said.
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 sources said. The regulators are also working
on providing follow-up guidance to banks, the sources added.
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Among those attending the meeting were Martin Pfinsgraff, senior
deputy comptroller for large-bank supervision at the OCC, and Anna
Lee Hewko, a deputy associate director at the Fed's division of
banking supervision and regulation, the sources said.
The sources asked not to be identified because the meeting was
private. The PEGCC and the Fed declined to comment, while an OCC
spokesman did not immediately respond to a request for comment.
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.
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A small number of PEGCC's members, such as Blackstone Group LP and
KKR & Co LP, 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.
"We have direct relationships with a number of institutions around
the world, some of which, frankly, are not subject to these
potential limitations ... Our private credit business should benefit
if the Fed guidelines get adhered to once people figure out what all
of the rules actually mean in practice," Nuttall said.
(Reporting by Greg Roumeliotis in New York; editing by Matthew
Lewis)
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