The credit markets continue to be subject to significant regulatory change. Recently, two steps have been taken that are intended to increase the ability of certain types of creditors to expand the availability of credit. First, the leverage limits applicable to BDCs pursuant to section 61(a) of the Investment Company Act of 1940 were amended to reduce asset coverage requirements on securities issued by them from 200% to 150%, subject to the satisfaction of certain initial approval and reporting requirements. Second, in a recent public forum, the Comptroller of the Currency, Joseph M. Otting, stated that so long as national banks conducted their lending activities “safely and soundly” national banks may make leveraged loans regardless of the wording of the 2013 Guidelines. These recent developments create opportunities for both adaptation and caution for applicable participants in the credit markets.

A national bank that wishes to rely on the Comptroller’s remarks could pursue at least three forms of adaptation: (i) increasing the size of the loans it funds; (ii) lending to borrowers that previously were considered ineligible; and (iii) revamping aspects of its compliance procedures. The first two options would arise under new internal standards for degrees of indebtedness and financial capacity established by such bank that differ numerically or otherwise from those set forth in the 2013 Guidelines. Any changes to those internal standards would affect both the profitability of their own leveraged loan portfolio and in addition the structure of this segment of the lending market generally, reducing the current significant gap between the lending policies of bank and non-bank lenders.