Leveraged Lending

Policies on Purchasing Participations in Leveraged Loans

As outlined in OCC Banking Circular 181, banks purchasing participations and assignments in leveraged loan arrangements must make a thorough, independent evaluation of the transaction and the risks involved before committing any funds. They should apply the same standards of prudence, credit assessment and approval criteria, and “in-house” limits that would be employed if the purchasing organization were originating the loan. At a minimum, policies should include the following requirements:

Obtaining and independently analyzing full credit information both before the participation is purchased and on a timely basis thereafter.

Obtaining from the lead lender copies of all executed and proposed loan documents, legal opinions, title insurance policies, UCC searches, and other relevant documents.

Carefully monitoring the borrower’s performance throughout the life of the loan.

Establishing appropriate risk management guidelines.

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