OCC Has 'No Exceptions Policy' for Financing Takeover Deals, Official Says; Regulators Are Warning Banks to Stop Lending Excessive Sums to Fund Corporate Acquisitions
U.S. regulators are warning banks to stop lending excessive sums to fund corporate takeovers.</br></br>A year after the Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. issued guidelines designed to deter banks from funding deals that regulators feel are too laden with debt, some banks have continued to finance such deals under the impression that the guidelines are flexible.</br></br>But now, the OCC says it isn't giving banks any wiggle room on the guidelines, which limit the amount they can lend to fund corporate buyouts and attempt to stamp out other lending practices regulators consider risky.</br></br>"On new issuance, we have a 'no exceptions' policy," Martin Pfinsgraff, the OCC's senior deputy comptroller for large-bank supervision, said in an interview.</br></br>Starting late last summer, the Federal Reserve and OCC sent letters to banks demanding they comply with guidance published in March 2013 saying they should avoid financing takeover deals that would put debt on a company of more than six times its earnings before interest, taxes, depreciation and amortization, or Ebitda. The guidelines also are designed to limit borrowing agreements that don't contain lender protections known as covenants and stretch out payment timelines.