Key takeaways

• The European Central Bank (“ECB”) has published its final guidance on leveraged transactions, following a public consultation on draft guidance that began on 23 November 2016. The final guidance, which applies only to banks directly supervised by the ECB, broadly follows the approach set out in the draft guidance, including the definition of “leveraged transaction” and the discriminatory treatment of private equity sponsored transactions.
• The final guidance differs, however, in many respects, including in the definition of “Total Debt”, which now refers to total committed debt (including undrawn debt) and any additional debt that loan agreements may permit. In a minor concession, however, to industry concerns, the definition of “EBITDA” allows enhancements, provided they are duly justified.
• The guidance may reduce the supply of finance available for certain leveraged borrowers from banks subject to it. Supply may well shift to sources not subject to the guidance, such as EU banks not subject to direct ECB supervision, loan originating funds or non-EU banks.