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| Barbara Grunkmeyer |
Leverage is back and it's back aggressively, Barbara Grunkemeyer, deputy comptroller for credit risk at the Office of the Comptroller of the Currency, told attendees. In addition, credits are containing fewer covenants, she added. However, leverage is nowhere near the go-go days of the late '90s, where there was also a lack of real equity, and a lot of poor business strategies. She suggested that banks should look beyond six quarters on seven-year deals. Attendees were split on whether the leverage levels are getting too high. One panelist noted total debt to EBITDA is 4.3 times, which is nowhere near the 8.8 times of 1987. "The market is fairly disciplined and has tranched out the risk," a banker said.
Major changes are also afoot in the market as the Basel II Capital Accords are implemented. Grunkemeyer suggested that 364-day tranches will disappear when the accords come in. She also said banks will be required to maintain much more data analysis. "Reporting needs to move up the organization," she said.