Basel III Capital Retention Requirements: Impact on Loan Structures and Loan Documentation

Structuring Yield Protection and Increased Costs Provisions, Transfer Restrictions, Purpose Clauses, HVCRE Loans, and More

Recording of a 90-minute CLE webinar with Q&A


Conducted on Thursday, May 4, 2017
Recorded event now available


This CLE webinar will discuss current Basel III standards and how they have impacted the commercial lending landscape. The program will look at the impact of the standards on terms and conditions of loan structures and loan documentation provisions that have been changed by lenders to meet Basel III standards.

Description

Basel III standards have resulted in an increase in the cost of borrowing as banks are required to retain more capital and meet liquidity and stable funding ratios with respect to certain loan portfolios.

Many provisions of loan documents are more critical to lenders and as the standards evolve, so do these loan provisions. Moreover, loans can be structured so as to avoid being subject to Basel III standards or at least minimize risks to lenders. This further impacts the terms of the loan documents.

Distinct requirements for high volatility commercial real estate (HVCRE) increase risk weighting for certain commercial real estate loans which, in turn, requires lenders to retain more capital. To avoid HVCRE higher risk weightings and capital retention requirements, loans must meet certain loan to value ratios and borrowers are required to invest and maintain a certain amount of equity.

Listens as our authoritative panel of finance attorneys analyzes Basel III capital retention requirements, the impact on the commercial lending environment, and how lenders have responded to Basel III in terms of loan structures and loan documentation.

Outline

  1. Overview of Basel III requirements
    1. Leverage ratios
    2. Liquidity ratios
    3. Impact on the commercial lending landscape
  2. Loan documentation for non-real estate loans
    1. Yield protection provisions and increased costs clauses
    2. Transfer restrictions
    3. Purpose clauses (liquidity facility or not)
  3. Overview of HVCRE regulation
    1. Implications of avoiding HVCRE
      1. Applicable LTV ratio and how it is calculated
      2. Borrower’s equity. The 15% rule
    2. Loan structuring issues
    3. Addressing HVCRE issues in your loan documents

Benefits

The panel will review these and other key issues:

  • How have the Basel III capital retention requirements impacted the commercial lending landscape?
  • What loan documentation provisions are of critical concern for lenders due to Basel III, and where is there room for negotiation?
  • How can HVCRE loans be structured to avoid or minimize additional capital retention requirements?

Faculty

Robert J. (Bob) Graves, Partner
Jones Day, Chicago

Mr. Graves represents lenders and borrowers in a wide variety of commercial financial transactions and has structured, negotiated, and documented scores of senior debt financing arrangements of all types, including secured and unsecured single bank and syndicated credit agreements, multicurrency financing facilities, and acquisition financings. A significant portion of his practice focuses on workouts and restructurings of troubled credits, with particular emphasis on debtor-in-possession and exit financings. He co-chairs his firm's Banking & Finance Practice. He has written a number of articles and spoken at numerous professional conferences and seminars on commercial finance, enterprise risk management, and banking regulation and compliance.

Ralph F. (Chip) MacDonald, III, Partner
Jones Day, Atlanta

Mr. MacDonald's practice emphasizes securities, mergers and acquisitions, corporate governance, financial institutions (including REITs, investment managers, and broker-dealers), and financial products. He is a frequent speaker and author on matters related to financial and investment services and products.

Camden W. Williams, Esq.
Jones Day, Atlanta

Mr. Williams advises banks and other financial institutions on regulatory, transactional and compliance matters. He has extensive experience advising domestic and international financial institutions on regulatory reform issues relating to implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the Volcker Rule and the enhanced supervision and prudential standards.


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Banking & Finance Law Advisory Board

Irving C. Apar

Partner

Thompson Hine

Mark N. Berman

Adjunct Professor

Northeastern University

Willa Cohen Bruckner

Partner

Alston & Bird

Lawrence Kaplan

Of Counsel

Paul Hastings

Kevin Petrasic

Partner

White & Case

Laura D. Richman

Counsel

Mayer Brown

Robert M. Stern

Partner

Orrick Herrington & Sutcliffe

Andrew Stutzman

Partner

Stradley Ronon Stevens & Young

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