Post on 14-Jan-2016
The Fall of Commercial (Wholesale) Underwriting
Standards
Kevin M. Blakely
The Risk Management Association
Purchase Price multiples
Copyright@2007 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
Total debt to EBITDA multiples
Copyright@2007 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
Spread per unit of leverage
Factors Contributing to decline in Underwriting Standards
Low Interest Rates
Rise of Private Equity Funds
Growth in private equity since 1992
Source: Merrill Lynch, Somerset Capital Limited, Watson Wyatt estimates.
Factors Contributing to decline in Underwriting Standards
Originate to Distribute Model
CLOs
Low Interest Rates
Rise of Private Equity Funds
The Fallout
Credit Crunch
Banks Tighten Internal Procedures
More Pain to Come
Increased Regulatory Interest
Summary
Underwriting standards Slipped to Unprecedented Levels
New Forces at Work
Expect a strong regulatory response