Regulators Mull Easing the Rules On HLT Loans
WASHINGTON - Federal banking regulators confirmed last week that they are considering making it easier for banks to lend to highly leveraged companies.
Three regulatory agencies said they are seeking comment from the industry on the existing rules as to when a loan must be classified as financing a highly leveraged transaction, or HLT.
Loans Viewed as Risky
The rules were adopted in February 1990 without formal input from the industry. Since then, banks have shied away from making HLT loans because they are automatically viewed as risky by both investors and regulators.
Las month a regular told the American Banker that the HLT definition might be reveiwed.
With an eye toward possible easing the rules, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Federal Reserve Board will accept comments until Aug. 26 on the entire definition as well as on five sections most often criticized by bankers and borrowers.
Leaving Definition to Banks
Among the most extreme proposals from the regulators is one to eliminate the HLT designation. Under this proposal, banks would be left to define the loans according to their internal guidelines, with the designation subject to review by examiners.
Highly leveraged transactions typically double the target companies' liabilities or result in a liabilities-to-assets leverage ratio greater than 50%.
The agencies want feedback on the following issues:
* The use of a cash flow criterion in the HLT definition.
* Specific criteria fro "delisting" loans from HLT status.
* Treatment of highly leveraged firms with investment-grade debt ratings.
* The application of the HLT definition to parent companies and their subsidiaries.