Japanese Regulator Finding Ways To Strengthen Leveraged Buyout Financing


As per the regulatory officials, Japan's financial regulator is looking into methods to increase funding for leveraged buyouts (LBOs) and is in talks with major banks and other institutions on how to expand market participation.Japan's authorities are becoming more concerned that the LBO funding market, which is concentrated among a few large banks, is not mature or varied enough to handle the increasing risks and demands as more firms step up sales of non-core assets or seek purchasers owing to succession difficulties.

"We are studying what we could do to have more participants in the LBO market while ensuring that risks are properly controlled," Toshinori Yashiki, deputy director-general at the FSA, according to sources.

"We hope to have a framework that helps prevent risks of leveraged financing being excessively concentrated in certain banks," he added, citing the development of a secondary market among possible options.

That indicates that regulators are taking a more proactive approach to LBOs.Similar to the United States, Japan has not yet established a secondary market for leveraged loans, therefore large buyout debt agreements are normally only arranged by wealthy, well-capitalized commercial banks that hold the majority of the debt on their balance sheets.

Risk is concentrated due to the small number of participants, which alarmed regulators when Marelli Holdings Co., an auto parts supplier acquired by KKR & Co. in a leveraged transaction, asked for a significant debt waiver and caused losses for some major banks last year.According to FSA data for the year ending March 2022, the amount of outstanding LBO loans held by major Japanese banks increased in five years to nearly 4.5 trillion yen ($32.32 billion). 

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