Wall Street banks are financing more private-equity takeovers with high levels of debt, despite warnings by regulators to reduce the amount of risky loans they make, the Wall Street Journal reported today. The Federal Reserve and the Office of the Comptroller of the Currency last year issued guidance urging banks to avoid financing leveraged buyouts in most industries that would put debt on a company of more than six times its earnings before interest, taxes, depreciation and amortization (Ebitda). The Fed and the OCC also told banks to limit borrowing agreements that stretch out payment timelines or don't contain lender protections known as covenants. Still, 40 percent of U.S. private-equity deals this year have used leverage above that six-times ratio deemed the upper acceptable limit by regulators, according to data compiled by S&P Capital IQ LCD. That is the highest percentage since the prefinancial-crisis peak of 52 percent of buyout loans in 2007. Such lending all but disappeared during the crisis but has risen each year since 2009.
