In February, LSTA EVP Meredith Coffey sat down with the outgoing LSTA Executive Director Bram Smith and the incoming LSTA Executive Director Lee Shaiman to discuss the last 10 years … and what is on deck for the next 10. Second of two parts – View part one.
Meredith Coffey: Bram, today the institutional loan market totals more than $960 billion, nearly doubling since the crisis. What have been the growing pains?
Bram Smith: It’s generally been all to the good. But being a nearly $1 trillion asset class brings downside as well. For instance, we now will be more scrutinized by regulators. And there will be more articles about the loan market – some good, some not so good. This is just the reality that we have to accept.
MC: Lee, speaking with your (ex) buyside hat on, how do you see regulation affecting the loan asset class?
Lee Shaiman: Two regulations that have had a major impact are Leveraged Lending Guidance and risk retention. While people think the Guidance might have capped leverage, I would suggest it muddied the waters. The definitions of EBITDA and leverage have become murkier as companies attempt to prove compliance with the Guidance. Perhaps an unintended consequence is the further disintermediation of the banks and the institutional loan market by less regulated alternative lenders.