Obstacles in Regulators’ Push to Reduce Leveraged Loans
By
Harry Campbell
In its effort to limit leveraged loans, the government is finding once again that regulating the financial industry is like a game of Whac-a-Mole, with new unregulated players popping up to fill the risky gaps.
Leveraged lending is associated most commonly with buyouts by private equity firms, which borrow significant sums to purchase public companies. Under the calculus of such deals, more debt usually translates into greater returns for the private equity firms.
But regulators, especially after the financial crisis, have perceived this lending as risky.
Too much debt heaped on the company could cause it to collapse. More important, during the financial crisis, several banks had committed to finance more than $300 billion in leveraged loans for private equity buyouts that had been negotiated but not completed. The banks escaped having to come up with the money only because many of the deals, like those for BCE and Penn National Gaming, fell apart. If there were another crisis and the banks were stuck with similar loans, it could only bring more pain…
Obstacles in Regulators’ Push to Reduce Leveraged Loans
