Interview with Daniel Damon, Managing Director, Loan Capital Markets, US Bank
A number of new challenges and issues affecting leveraged finance have recently emerged. The continued pressure of the Interagency Guidance means institutions are concerned of falling foul of the regulators. In addition, the current market trends of rising interest rates and falling oil prices have heavily impacted the creation and funding of leveraged loans, making it harder and harder to manage them in the current regulatory environment.
Daniel Damon, Managing Director, Loan Capital Markets at US Bank recently spoke with GFMI about key topics to be discussed at their 2nd Annual Leveraged Lending in the Shifting Regulatory Environment Conference, June 22-24, 2016 in New York, NY.
Why is leveraged lending still an important issue for institutions?
DD: Given the current regulatory environment, institutions are highly focused on ensuring compliance with leveraged lending regulations. In addition to regulatory authorities, the rating agencies and equity analysts are paying close attention to these issues which has caused many institutions to scale back and be more transparent regarding their leveraged activities.
How have regulations and the current market environment affected leveraged lending?
DD: Institutions are carefully weighing how much capital they will allocate to leveraged transactions, which sectors they deem appropriate for leveraged lending and what returns they will require to commit to these types of transactions. The overall effect has been to reduce the number of leveraged transactions, as well as to reduce the amount of leverage in individual transactions. Additionally, non-regulated institutions have increased their market share as regulated lenders have scaled back their activities.
How is the rise in interest rates impacting leveraged lending?
DD: To date, the increase in interest rates has not materially affected leveraged lending as the increase has been moderate and expected. However, in the event of a rising interest rate environment, leveraged lending will likely be affected as the ability to de-lever and amortize loans will be reduced. Lenders should also begin to review upcoming maturities of their leveraged borrowers in order to best position them for refinancing within leveraged lending guidelines.
With the current market conditions and regulatory atmosphere, are leveraged loans still a viable product for institutions?
DD: To the extent institutions establish clearly defined expectations of their leveraged lending product (i.e., volume goals, return expectations, etc.), leveraged lending can still remain a viable product. Risk adjusted return models and credit approval processes will ensure that institutions can scale their business models to profitably and safely continue their leveraged lending activities, albeit at reduced levels as compared to historical periods.
What do you think attendees will gain from this event?
DD: By attending this event, people will gain a better understanding of how other institutions manage their leveraged lending portfolios and risk tolerance they are willing to live with. This will hopefully enable the industry and regulatory authorities to have a more consistent approach to underwriting standards and processes.
Daniel Damon is a Managing Director in the Loan Capital Markets Group of U.S. Bank. Mr. Damon has 25 years of experience financing acquisitions, recapitalizations and leveraged buyouts. At U.S. Bank he is responsible for originating, structuring and syndicating lead agent transactions to private equity sponsors and corporate clients with a focus on the Telecommunications, Media and Information/Software Services industries.
Prior to joining U.S. Bank, Mr. Damon was in the Sponsor Finance Capital Market Group of GE Capital and in the Capital Markets Group at The Bank of New York where he was Head of the Structuring Group. Mr. Damon has an M.B.A. in Finance and Accounting from the University of Chicago Booth School of Business and a B.S. In Management and Finance from Binghamton University.
This GFMI conference will enable financial institutions to understand the latest developments in the leveraged lending market. Heads of leveraged finance, leveraged underwriting and credit risk will discuss the latest strategies to understand the guidance and implement it into business as usual. Through case study presentations, institutions will improve their underwriting standards, optimize their loan refinancing strategies and strengthen their risk management practices to remain profitable and competitive in an increasingly challenging market.
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