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Trlpc acostas loan refinancing tests us regulators


A $2.06 billion term loan for sales and marketing agency Acosta Inc is testing the US leveraged loan market's ability to refinance existing loans with high leverage levels as regulators try to curb riskier lending. The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation stepped up efforts to clamp down on new buyouts with higher leverage late last year, but the position on refinancing existing loans has been less clear to date. JP Morgan is leading a refinancing for Acosta, which aims to cut the company's borrowing cost. The loan, which was originally syndicated in August 2014 before regulators tightened the reins on Wall Street lenders, has total leverage of 7.6 times and senior leverage of 5.2 times, loan sources said. Moody's Investors Service puts leverage higher at more than 8.0 times."I didn't think a refinancing like this could get done," a loan investor said. Banks have been reluctant to underwrite new buyouts with leverage of more than 6.0 times that regulators view as problematic and can fine banks if enough 'special mention' or criticised deals stack up on their balance sheets. Regulators also look at repayment and can deem deals with high leverage to be passing credits if they repay half of their senior debt or all total debt in five to seven years. The same rules were also thought to apply to refinancings, however the OCC said that deals may need more than maturity extensions or lower interest rates to make them passing credits.

"Acosta is testing the guidance," a loan portfolio manager said. Acosta's original loan has yet to be reviewed by regulators, a banking source said. The leveraged lending guidelines have hit leveraged loan volume. Institutional loan issuance dropped to $41.6 billion in the first quarter of 2015, down from $175 billion in the same period last year, according to Thomson Reuters LPC data. Few highly leveraged refinancings have been completed since the leveraged lending guidelines were implemented and tens of billions of highly leveraged loans need to be refinanced in the next few years.

Companies that have difficulties refinancing existing leveraged loans either to extend debt maturities or reduce pricing could suffer ratings downgrades, face higher borrowing costs and could even be pushed into default. The Loan Syndications & Trading Association (LSTA) estimates that $5.9 billion of loans that will receive special mention from regulators will mature in 2016. This number jumps to $10.1 billion in 2017 and $14.7 billion in 2018 before topping out at $15.5 billion in 2019. ACOSTA TEST

Acosta's term loan, which matures in September 2021 is being marketed at 325 basis points (bp) over Libor with a 1 percent Libor floor and a discount of 99.75-100. The term loan will have soft call protection of 101 for one year. The refinancing will cut the company's borrowing costs by 75bp, which gives annual interest savings of around $15.5 million, according to Moody's. The company has performed well since its buyout by Carlyle Group and should be able to reduce leverage levels through operating performance, the rating agency said."Moody's adjusted debt leverage is still well above 8.0 times but given our expectations for EBITDA improvement, we expect that to go down," Manish Desai, a Moody's analyst said. While the leveraged lending guidelines on refinancing remain unclear, a successful syndication for Acosta will help to clarify regulators' views on strong credits with higher leverage, investors said."It's a strong credit, and at the end of the day, they are asking to make it stronger," a CLO manager said. JP Morgan declined to comment.

Update 2 transparency alone wont fix money markets feds rosengren


* Fund companies have moved to post daily net asset values* Status quo still not acceptable, Rosengren saysBy Jonathan SpicerNEW YORK, Feb 12 Moves by fund companies to post daily net asset values, while positive, will not alone protect investors from crisis-era panics in the troubled money markets, Federal Reserve Bank of Boston President Eric Rosengren said on Tuesday. Rosengren, an outspoken regulator in the debate over what to do about money market mutual funds, said in an interview that "the status quo really is unacceptable." He added that the problem will not be solved "purely by disclosure."Instead, Rosengren highlighted a letter in which he and the presidents of the other 11 regional Fed banks called for more aggressive steps to reform the $2.6-trillion industry. Money market funds threatened to freeze global markets in the financial crisis, capped by investors' rush to flee the well-known Reserve Primary Fund in the fall of 2008 because of its heavy holdings in collapsed Lehman Brothers. The fund was unable to maintain its $1 per-share value, known as "breaking the buck."While the debate over what to do to safeguard the market has drawn on, fund managers such as Fidelity Investments, Federated Investors Inc and Charles Schwab Corp have begun posting daily fund asset values.

"Posting the daily net asset values I think is positive and I would encourage the industry to continue to think about ways where disclosure could be helpful," said Rosengren, whose Fed district is home to many of the fund companies."There are more disclosures that could still occur, including providing daily or weekly positions, for example," he added. "But that disclosure alone doesn't solve the issues, particularly with the potential with runs on money market funds."In their letter to the main U.S. risk council, dated Tuesday, the presidents of all 12 regional Fed banks said they backed a number of tougher reforms currently being considered by federal regulators. Fund companies could be allowed to offer different protections for different funds, they said. But the Fed presidents poured cold water on an industry-backed idea to stabilize the market.

Simply implementing temporary withdrawal restrictions on the funds, known as "standby liquidity fees" and "temporary redemption gates," fall short of what is needed, the Fed officials told the Financial Stability Oversight Council, or FSOC. Last month the Investment Company Institute, the asset management industry's main trade group, outlined just such a limited plan and offered few compromises. On Tuesday, ICI repeated that a temporary redemption gate and liquidity fee for prime money market funds "is the only proposal under discussion that would stop redemptions during extreme market stress."

"The FSOC's other proposals would not accomplish regulators' stated goals and would harm investors and the economy," the ICI's Ianthe Zabel said in an email. The fund companies have argued that the posting of daily asset values is meant to show investors that money funds are stable because the share values vary by only miniscule amounts from day to day. Goldman Sachs Group Inc, JPMorgan Chase & Co and BlackRock Inc, which oversee $489 billion, or 20 percent, of U.S. money market funds, have also taken such transparency steps. Last summer, a sweeping rule proposal by the Securities and Exchange Commission was blocked. Since then the industry and the FSOC, which includes officials from the Fed Board in Washington, have been locked in debate over what changes to make. The suggestions in the letter, released by Rosengren and signed by all 12 Fed bank presidents, were similar to those made by the FSOC. While investors in one fund could be protected by a floating net asset value, investors in another could be protected by a stable NAV with a capital buffer, the Fed officials said."I don't think this is going to be solved purely by disclosure, and I think that's what this letter highlights," Rosengren said.