Barclays Plc lowered its forecast for U.S. leveraged loan issuance this year to as little as $250 billion, as regulatory scrutiny limits riskier debt for buyouts.
The slow pace of companies tapping the market for new deals in the past five months prompted the bank to cut its February projection of $305 billion to $330 billion, according to a report Friday from the lender. “The onus of the leveraged lending guidelines will continue to diminish high-leverage buyout financing,” New York-based credit strategists led by Bradley Rogoff wrote in the report.
U.S. regulators, including the Federal Reserve and Office of the Comptroller of the Currency issued leveraged lending guidance inn March 2013 to curb underwriting of risky corporate loans. That’s crimping supply of new debt to the market, spurring many borrowers to seize on the shortage to lower rates on existing loans.
“The banks are being even more conscious of the guidelines,” Rogoff, who heads global credit strategy at Barclays, said in a telephone interview. “It’s having a bigger impact than it was having last year.”
The lending guidance from regulators says that total debt levels of more than six times a measure of earnings raises concern. The OCC said on June 3 that the underwriting of leveraged loans will be among the areas of its supervisory focus in the second half of this year.