Voya Senior Loan Bank Advisory Program
Good commercial loans are hard to find, and if your bank is faced with excess funds that need to be put to work beyond local real estate loans and Treasury securities, the Voya Senior Loan Bank Advisory Program can help. The Voya Senior Loan Bank Advisory Program can give your bank access to the $1+ trillion senior loan market, commonly called the leveraged loan market.
An acquired bank-quality portfolio of syndicated commercial loans can:
- Increase your C&I loan portfolio
- Help manage interest rate sensitivity
- Enhance profitability through improved efficiency
- Diversify asset concentration risk
- Provide higher net interest margins
- Foster in-house expertise in C&I lending and disciplined risk management
- Improve asset liquidity
Voya will help you:
- Plan and document your initiative
- Create a syndicated loan credit policy
- Write a comprehensive Business Plan for the initiative
- Obtain Board and regulatory approvals
- Underwrite credits, analyze ongoing fundamental borrower and industry performance risk
- Train your personnel
- Obtain access to syndicated loans
- Employ custom servicing, accounting and reporting systems
Education
The leveraged loan market is a large, complex market with hundreds of participants either purchasing, arranging or syndicating corporate loans. The Voya Senior Loan Bank Advisory Program will equip your bank with the necessary training and operational tools to enter the leveraged loan market. The Program provides your bank with access to the leveraged loan market, but also includes built in controls that ensure accountability and alignment of interests between your bank and Voya.
The Leveraged Loan Market
The syndicated senior loan market is over $1 trillion in par amount outstanding, representing over 900 borrowers (issuers).
Borrower (Issuer)
-
Hires arranger/agent/professionals to assist in raising capital
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Capital raising may include secured loans and junior capital
- May simultaneously raise equity capital
Arranger
- Structures facilities
- Negotiates documents
- Information disclosure
- Administrative tasks
- Invites/solicits lenders (book running)
Lenders
- Asset managers, investment banks, CLOs and institutions
- Retail mutual funds
- Banks: money center, national, regional, and community
Leveraged Loans and Attributes
- Loans to mid-to-large sized corporations to finance acquisitions, other growth initiatives, and dividends
- The most senior debt in the capital structure (generally secured by a first priority lien on a borrower’s assets)
- Leveraged lending market based on cash flow lending methodology ─ the level of debt at an issuer is a function of the level and sustainability of company cash flows
- Floating rate, with coupon return comprised of a credit spread over LIBOR, plus fees
- Privately traded in an established and active secondary market
- Most leveraged loans are part of the Shared National Credits Program
- Most loans in the S&P/LSTA Leveraged Loan Index are rated by at least one of the nationally recognized statistical ratings organizations; S&P ratings range from BBB to D, and Moody’s ratings range between Baa1 and D
Potential Benefits
The Voya Senior Loan Bank Advisory Program is a comprehensive corporate lending program that assists regional and community banks build and monitor corporate loan portfolios. The program was designed to be compliant with regulatory leveraged lending guidelines but also address the financial and diversification needs of community and regional banks. Potential benefits include:
- Diversifying your risk with a multi-industry corporate loan portfolio
- Enhancing your profitability
- Accessing the syndicated loan market not typically available to community banks
- Serving borrowers who may have operations and employees in your market area
- Gaining assistance and training from Voya and FI Growth to meet regulatory requirements of engaging third party providers
- Obtaining training and underwriting support to satisfy regulators regarding risk management controls and processes
- Improving rate sensitivity – all loans are floating rate
- Fostering in-house expertise in commercial lending and disciplined risk management
Voya’s Place in the Market
The Voya Senior Loan Group functions as an asset manager. As an asset manager, Voya actively manages portfolios of senior syndicated loans for institutional clients on a discretionary basis (Voya makes the portfolio decisions), and works closely with commercial banks on a non-discretionary basis (Voya recommends, and banks independently approve portfolio decisions).
The Voya Senior Loan Group works with essentially all agent banks to acquire loans in new primary syndications entering the market place. Additionally, Voya works with numerous counterparties in the broad secondary market to acquire loans in that venue.
The Senior Loan Group is well respected in the market for its experience and credit risk expertise.
Voya’s commitment and business model are to work entirely in the bank client’s interest with no conflict of interest. Voya’s efforts are focused on each bank reaching its portfolio composition and risk / return objectives.
Preparation
To enter the leveraged loan market, your bank will need a comprehensive business plan outlining your bank’s risk appetite, financial goals, leveraged lending policies, trading procedures, underwriting process, and ongoing credit monitoring procedures. Voya works with your professionals to ensure your program meets all of the regulatory requirements. The Program development is a collaboration between Voya and your bank.
We utilize a comprehensive project management system whereby multiple team members collaborate and direct the bank’s implementation activity to comply with FDIC and other regulatory guidance for third-party risk, including lending and outsourced technology.
Internal Policies and Procedures
The cornerstone of any new banking business venture is to ensure the bank puts in place appropriate policies and operating guidelines to control risk and provide management with sufficient operating, financial, and risk management information. The Voya Senior Loan Group works hand-in-hand with senior bank management in developing a board-approved leveraged loan policy that is appropriate for your bank and adheres to current regulatory leveraged lending guidelines. As your leveraged lending partner, Voya will:
- Work with bank management and a third party loan servicer to establish internal leveraged loan trial balance reporting and interfaces to facilitate seamless management reporting of loan positions and portfolio quality. The Voya Senior Loan Group will also work with management in the development of monthly and quarterly portfolio reporting to include, risk/return analysis, exposure management, loan loss provision adequacy, and industry concentration limit management
- Help establish leveraged loan approval and underwriting procedures for your bank that meets regulatory leveraged lending guidelines
- Partner with your management team to establish primary and secondary loan trading procedures to ensure appropriate approvals and processes are in place
Leveraged Loan Credit Policy
The credit policy document is a critical element of a leveraged lending strategy as it provides a strategic and logistical blueprint of a bank’s leveraged lending initiative. The policy should consider regulatory pronouncements and guidance to assure that compliance is a foundational principal in building a syndicated loan portfolio.
The Voya team can work extensively with the bank to formulate / amend the bank’s syndicated loan credit policy to meet these objectives.
Business Plan
The syndicated loan business plan details the due diligence and strategic considerations by the bank to proceed into the syndicated loan asset class. The document is useful to executive management, bank investors and bank regulators to illustrate expected results and processes.
The Voya team can work extensively with the bank to create the syndicated loan business plan to meet these objectives.
Loan Servicing
A characteristic of syndicated loans is the somewhat extensive and complex accounting entries that arise out of multiple interest rates, multiple loan tranches, early paydowns, amendments and other elements. The majority of community and regional banks have limited ability to manage these elements with traditional accounting processes.
Banks in the Voya Senior Loan Program have access to and utilize a premier third party loan servicing provider (Markit Partners WSO) that manages, reconciles, communicates and reports on these elements for each bank on a state-of-the-art external platform. The Voya banks benefit from enterprise level pricing for this service.
Third Party Assessment
Banks are required to complete rigorous third party risk assessments when engaging third party service providers such as Voya and Markit. The Voya program anticipates this requirement and facilitates completion of these assessments with each commercial bank.
Specific Risk Management Processes
Syndicated Loans are a well-established asset class with over $1 trillion in outstanding loans in the market. These loans benefit from well accepted and effective methodologies for calculating and assessing risk by funding banks, rating agencies, analysts and regulators.
Among these methodologies are processes for utilizing a cash flow based lending rationale, enterprise value calculation, loan structuring nuances, call protection, stress testing and others.
Banks in the Voya program are instructed in these methodologies to assist each bank in risk recognition, market parlance, and procedural dexterity.
Implementation and Execution
Voya works with your bank on an ongoing basis to identify loans that meet your internal policies and regulatory leveraged lending guidelines, as well as exhibit the appropriate risk/reward profile. Your bank professionals will have access to Voya’s complete underwriting package and the 26 member Voya research team.
- Your loan portfolio is carefully constructed over the course of several quarters to assure balance with funding sources and capital support
- Building your portfolio is a customized process, with the Voya team
- The Voya research team will provide your bank with quarterly monitoring reports and industry insights that will allow you to monitor borrowers within your portfolio
- Voya’s trading and operations teams will assist you with the execution and settlement of trade orders
Building the Portfolio
Before a single syndicated loan is acquired by a commercial bank in the Voya program, the Voya team and the bank thoroughly assess the bank’s syndicated loan credit policy and specific risk appetites and objectives for mutual understanding. At that point, Voya applies its unique filtering processes to identify those loans in the primary and secondary markets that meet those objectives and the portfolio is built loan by loan at the bank’s preferred pace until those targets are attained.
When a particular loan is identified as appropriate and subsequently approved by the bank for acquisition, Voya traders facilitate the loan acquisition on behalf of the bank to gain best available pricing and allocations. This is a direct benefit of Voya’s experience, longevity, and market presence.
Managing the Portfolio
Voya’s support of each commercial bank does not end when a loan enters the bank’s portfolio. Voya’s support continues over the life of the loan and includes quarterly support in assessing the borrower’s operational performance, covenant compliance, enterprise valuation update, economic and sector evaluation, ALLL, loan risk grading and problem loan support.