Key takeaway

• On 23 November 2016, the European Central Bank (“ECB”)  launched a public consultation on draft guidance on leveraged transactions (the “ECB Guidance”).  The consultation period runs until 27 January 2017, upon which the ECB will hold a public hearing as part of its consultation in Frankfurt.
• The ECB Guidance summarises key supervisory expectations concerning leveraged transactions, and ongoing monitoring of both syndication risk and fundamental credit quality of leveraged exposures.
• Firms subject to the ECB Guidance should begin reviewing their internal processes to ensure compliance by the time it is adopted.  Private equity sponsors will need to study the impact of the guidance on the availability of financing for future transactions (and amendments to existing transactions) and on their ability to secure alternative financing sources if existing sources are likely to reduce their business or impose stricter conditions in loans.