Leveraged Lending

Internal Reviews on Leveraged Credits

Banks engaged in leveraged finance need to ensure that their internal review function is appropriately staffed to provide timely and independent assessments of leveraged credits. Reviews should evaluate risk rating integrity, valuation methodologies, and the quality of risk management. Because of the volatile nature of this type of lending, portfolio reviews should be conducted on at least an annual basis. For many institutions, the risk characteristics of the leveraged portfolio, such as high reliance on enterprise value, concentrations, and adverse risk rating trends or portfolio performance, will warrant more frequent reviews.

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