Leveraged Transactions Credit Risk Analysis

Definition

Leveraged Transactions Credit Risk Analysis is the Credit Risk Analysis of lending transactions with substancial leverage (Leveraged Transaction)

EBA Requirements

When assessing the creditworthiness of the borrowers in cases of leveraged transactions, in addition to the general provisions on the creditworthiness assessment set out in Section 5.2.5 and Section 5.2.6, institutions should identify excessive leverage at origination, defined as a ratio:

total debt to earnings before interest, taxes, depreciation and amortisation (EBITDA). Transactions with excessive leverage should remain exceptional (and should be in line with an institution’s risk appetite) and form part of the credit delegation and risk management escalation framework of an institution.

Institutions should conduct a comprehensive assessment of a borrower’s capacity to repay or deleverage to sustainable levels of debt within a reasonable period of time.

See Also

• EBA Guidelines on Loan Origination and Monitoring