Pub. 7 2012-2013 Issue 4

www.nebankers.org 28 Extraordinary Service for Extraordinary Members. The recession of 2008 and 2009 had a significant impact on commercial lending in the United States and abroad. For many in the industry, the speed and breadth of the subsequent recovery have been disheartening. N ONETHELESS, THERE ARE POSI- tive signs, at least in certain sectors, as stable institutions find themselves with liquid- ity and a desire to produce earnings through increased lending activity. Since the fourth quarter of 2010, the volume of commercial lending has steadily increased each month. According to the Federal Reserve, commercial and industrial loan port- folios at commercial banks are now approximately 20 percent larger than they were at the end of 2010. This growth in commercial lending gener- ally is not the result of a wide-scale return to pre-recession underwriting standards. According to the Office of the Comptroller of the Currency’s 2012 Survey of Credit Underwriting Prac- tices, 70 percent of surveyed banks did not change underwriting standards from 2011 to 2012, while 14 percent of surveyed banks eased underwriting standards. The easing of underwrit- ing standards was most prevalent in leveraged, large corporate, and asset-based lending—underwriting standards generally were unchanged Developments in Commercial Lending Aaron Johnson , Husch Blackwell LLP COUNSELOR’S CORNER or tightened in commercial real estate and international lending. The desire on the part of institu- tions to increase commercial lending while maintaining strict underwrit- ing standards has resulted in limited deal flow, creating competition for the strongest credits and resulting in terms that are borrower friendly. Syn- dicated credits with strong borrowers are often oversubscribed, creating opportunities for negotiation of favor- able terms. Some of the more notable trends in syndicated financing terms are briefly discussed below. LIBOR Floor With the onset of the financial cri- sis, LIBOR floors of 2.00 percent to 3.00 percent became common. Since 2011, the LIBOR floor commonly is being reduced to between 1.00 percent and 1.75 percent or eliminated com- pletely. In addition, given the current competitive environment, lenders are experiencing continued pressure to reduce margins. Use of Incremental & Accordion Facilities Given the competition that exists for the strongest credits, lenders have shown an increased willingness to structure incremental and accordion facilities. These facilities allow bor- rowers to add additional term loans or increase existing revolving facilities up to a pre-negotiated amount without obtaining additional lender consent. In certain circumstances, the amount may be unlimited subject to compli- ance with certain financial covenants. These accordion facilities may be seasonal depending on the borrower’s industry and liquidity needs. In ad- dition, these facilities may include a “most favored nations” provision, which provides that if the incremen- tal loan is only available at a higher interest rate than those applicable to existing loans, the rate on the existing loans may be increased.