 Good afternoon everybody. Thank you very much for joining us today We would hereby like to start and open the public hearing on the draft ECB Guidance to banks on leverage transactions We have here on the panel and Patrick amy. He's the deputy director general of Microprudential supervision one and with him four supervisors in his team John Baptiste Jill Jan Eric folk Ivan Stylianoff and Georg Paula We would first and Patrick amy will give a short presentation And afterward you are very much invited to ask them questions When you ask a question, please state your name and your affiliation and I would ask you in the first round at least to limit your questions to two as the president does with his press conference Thank you very much. Thank you very much. Welcome to all of you We are going to present a little bit of slides to to introduce the topic and of course then There after we are very happy to to get questions and explain a little bit the rationale for the drive guidance And I will share that presentation with colleagues Just to make it a bit more lively Let's start with Maybe directly with slide three with the timeline of the public consultation just to to give a sense of timing and the next steps So as you know, the public consultation was long end of November last year Today is the public hearing and we will Close the consultation period at the end of last week We expect to receive a number of comments. We will analyze those comments and we Hope to be able to finalize the guidance by the end of the first half 2016 2017 sorry on the On the background and why we sought it important to come up with a draft guidance on leverage finance, I think Just to remind we started in 2015 Sematic review on leverage finance. We sought based on An extra evidence at that time that the market was developing very very fast with some trends that we wanted to investigate Further so we started that semantic review Which was conducted in several phases I think it's important to note that already we issued to individual banks that were Is it better? Yeah, that were subject to the Sematic review we issued individual recommendations with with specific timelines to address Specific concerns or comments we had for each of those banks subject to the Sematic review So the draft guidance is complementing Individual actions that are already being taken and being followed up in GSTs Maybe just to concentrate on some of the main findings of our survey and Sematic review we had Very marked increase in volumes on transactions since 2012 With some features that you all know of The trend towards covenant light transactions and since we did the review it did not This trend did not reverse on the contrary and also rather interesting features in 2014 The volumes of new transactions were represented for more than a third of the new transactions with with refinancing of existing transactions with higher leverage So based on Those different trends that we noted across the banks We had as I mentioned individual follow-up and we thought it would be important to come up with guidance To further steer more consistently the market also having in mind that We are not the the first in doing this. We had Prior to our Interest in the subject we had as you know Guidance being published in the US and so US banks are already subject to guidance That is very similar in intent and content to what we are trying to achieve here I think it's important to mention that what we want to contribute to is Smooth and stable financing of the economy over time This guidance is not about restricting access to credits to corporates And I want to make that very very clear Maybe if we move to the next slide So just to remind that the guidance is expressing supervisory expectations So this means that it is a non binding instrument. It is not a regulation per se however Deviations from the content of the guidance will be of course Analyze by the GSTs going forward and by the onsite inspections and we will expect that banks explain material deviations from the guidance The applicability of the guidance it will be applied to all institutions supervised by the ECB and however we of course will Expect that banks apply proportionality in applying these guidance and we will ourselves apply Proportionality meaning that banks that have very few activity in terms of leverage financing, of course will not be Expected to apply the guidance in in the full level of detail in terms of scope We want to apply it to a consistently defined leverage transaction universe And however some of the expectations in the guidance we feel might be relevant for all the types of Activities or operations like syndication activities for instance more broadly the guidance itself addresses three key dimensions as I mentioned a Definition consistent definition. The second is considerations pertaining to underwriting and syndication And the third is pertaining to risk monitoring and reporting an IT tools the guidance as I mentioned as well is closely aligned with the US guidance and and other initiatives And with the ECB draft guidance on non-performing exposures We have some cases of deviation from the US guidance that we will Present a little bit further in the slides and I'm sure we will receive questions on those as well during this public hearing Maybe I will give the floor to to Jean-Baptiste to start presenting a little bit more in detail the definition part of the guidance So good afternoon everyone so thank you Patrick as you mentioned we we've run a thematic review on 2015 and one of the findings was pertaining to the to the definition of leverage transaction and the finding we had is that Between banks the definition of a leverage transaction was very different and sometimes also within banks They have some multiple and often competing Definition of leverage transaction. That's why we come up with a proposal and a preliminary definition of leverage transaction that I'm going to Go through quickly in the slides so The definition works pretty simply you've got elements of inclusions and elements of exclusion and the first and main elements of inclusion is a leverage test where we actually Look at the in depth in depth level of one borrower and we assume that when is that is more than four times It's operating profit this corporate borrower is leverage and should be captured by our definition and this four-time metric is something that is pretty common as a market practice and also a line with The ratio the ratio that was in the US guidance When it comes to the bottom part of the slide so the exclusion so we exclude We have three main exclusions From the scope of leverage transactions. So the one exclusion is related to the counterparty type so we don't want to capture loans to Private individuals. We don't want to capture loan to public sector entities The purpose of the guidance is not to have financial institution loan isa Then we've got a second type of exclusion that is a kind of materiality threshold. So very small transaction Small being defined as below five million euro. I excluded from the scope of exposure that we want to capture and Finally, we Exclude also type of structure credit activities Meaning that what we want to focus in the guidance is rather on cash flow base lending and we exclude Activities that are mostly asset base or asset base lending is excluded commercial relay state is is excluded As you will see on the right part of the slide, we've got some Expectation in terms of what we want to see in the in the as a feedback from From every interested stakeholder in this public consultation and what we are very keen on having is to have a kind of Quantification of the exposure that would be captured by the guidance So any type of quantitative information that you are able to provide us will be very helpful for us to size More precisely even more the effects of the definition And when it comes to exclusions You might have some question of the comprehensiveness of these exclusions and on that particular point We also welcome Detail comments on why sometimes you will deem some other exclusion Justify so Moving now to the to the next slide. I will get a bit more in detail with the leverage test So it's it's it's a very basic ratio that compares the level of debt with the The a bidder The a bidder as per the current version of the guidance is based on an unadjusted metric So I'm sure that we will get more in details concerning this and adjusted a bidder But something that is important to say at this stage is that It doesn't mean that as part of the covenant negotiation that you have with a borrower You cannot use an adjusted a bidder. It just means that for the purpose of reporting and for Very basic consistency reason we seeing at this stage that an unadjusted a bidder will be the more Simple the simplest way to have consistency in the in the bank that we are monitoring When it comes to the second part of the ratio the total debt so we We wanted to make clear that we are Really speaking of total debt so we don't At this point in time net the cash of one borrower For this calculation in that we look at the at the commitment rather than only at the drawn part of the debt So whenever there is undrawn line we do expect at this stage that this and red line undrawn lines are Including in the in the calculation, so I won't get into more details at this stage If you're free to to ask question after would after the Presentation and you will see again on the right side the type of information that we are keen on receiving So you might have some IT constraints when Receiving and using a bidder. Please let us know as part of the public consultation and we have also one open question On the treatment of incremental debt When it comes to the debt calculation, so please feel free to give your thoughts on that and use Release this public consultation as a forum for discussion So I give the floor to Ivan on the other aspect of the guidance Yes, thanks a lot. Good afternoon from me, too So on top of the definitional aspects the guidance also raises expectations with regard to risk management across Several points of attention which we identified as part of a thematic review So here in any case given the results of the review We are confident that some of these aspects are already in place in some of the banks But we have not seen the consistency which we would like to and we have not seen them as common practice and that's why we have Decided or we saw the need to outline them a bit more in detail in these guidance So here I would like also to use the chance to ask you to please flak as part of your comments in the public consultation where whether any of the outlined Expectations would lead to material changes in the current internal approach to risk management and The more specific you are in your comments the better obviously So now going through the expectations First and foremost we are in the view that that excessive leverage levels have proven to be risky and raise Supervisor concerns across most industries over the cycle So in this context while we might not have necessarily seen Evidence of excessive high leverage in the market right now We would expect banks to have detailed risk apatite statements which outline acceptable Leverage levels which would be in line with the overall risk apatite of the institution. So Additionally on the more quantitative side the thematic review identified a few cases of weak Underwriting quality especially linked to Covenant structures Which also find their way in the industry more and more as we as we have seen but also linked to the assessment of syndication and also refinancing risk and then here we consider it appropriate to outline an expectation that deals with the amount of leverage and the said essential the expectation is that Bank consider the banks consider financing a borrower with a leverage which exceeds six times Depth to a bid that only if this is approved and reviewed by by senior management as well So here we have we have essentially Received some questions around this expectation. So maybe it makes sense to elaborate just a little bit further at this stage It must be clear here Also is about Rick said in the beginning that we're not setting a non-passed threshold or or any limit Which says the deals above six times should not be underwritten instead. We are setting an expectation for more stringent risk management and Deals with excessive leverage should essentially be reviewed and approved by senior management of the bank as well and Lastly this expectation applies to all forms of syndication, which means both to underwriting but also to club deals I would give the floor to Thanks even the next two items on page 9 will tackle Both aspects concerning failed syndications and secondly the repayment capacity expectations. We are lining in our guidance So let's start with failed syndications as part of the tomatic review We identified that in adverse market conditions the potential for banks to generate significant losses In on the written exposures is existent and is a potential risk At the same time we've identified that the risk function should be actively involved in the syndication process both in terms of monitoring and to limit and potential over-liens of a syndication function secondly and that's the third bullets you see on the left we Raising expectations in terms of senior management involvement in both the approval of a risk appetite and a strategy But also in terms of a of an overall monitoring framework underlying failed syndications The whole thing translates and that's what you see on the right into two broad Expectations one being a more quantitative sites and the other part being more on a qualitative risk management sites in terms of failed syndications the Current draft ACB guidance clearly outlines a what we identified as part of the tomatic review a best practice in terms of the number of days past Deal closure in which a transaction is to be classified as failed or hung We've identified that as being 90 day and that's the current threshold as stated in the guidance That's also aligned with the current threshold other supervisors have in particular the US Stated in their guidance the second part and that's the more qualitative risk management aspects of that of that particular Expectation center around the involvement of senior management within the process both in detailing a Clear district de-risking strategy and also detailing the procedures in place to manage distribution failures Which then again on the on the right side links in with the policies We expect to be in place in terms of the classification of Exposures in the pipeline or in excess in terms of a classification to regulatory banking in a regulatory trading book So in terms of key takeaways from that the risk function as we speak is expected to be more actively involved in the syndication monitoring of Underwriting on the second part and that's the bottom part you see on the repayment capacity What we've identified as part of the tomatic review has been and as Previous you hide it more liberal structures in terms of amortization profiles Which also and that's the second point you see have led to an implicit refinancing assumption in these structures The ability in these structures to serve as debt is in most case given Questioning the ability however of the borrower to ultimately pay the entire debt over a reasonable period of time We aim at addressing both points in our current draft of the ECB guidance We call it repayment capacity and we are expecting banks to have realistic assumptions both in their cashflow core forecast, but also in the Determining whether the borrower is able to within a reasonable time Dileverage to a sustainable level and that sustainable level as per current draft would be a deleveraging of 50% to 50% of total debt Within a reasonable time frame define as five to seven years again Aligning this supervisor expectations to those outlining within the US guidance I'll pass the floor to Georg to tackle the issues identified on page 10. So on page 10 first on the credit approval process where results of Sematic review actually indicated In over reliance on front office due diligence as well as heterogeneous standards with respect to sensitivity analysis and stress testing From this the guidance first of course Emphasizes the importance of strong involvement of the risk management in the credit approval process Which of course should be clearly defined in the banks policies and in addition the guidance emphasizes the importance of sensitivity analysis and stress testing being sufficiently conservative and capturing tail and market events as well as idiosyncratic events and Here at this point related to stress testing We also would highlight that stress testing is not only quite important When we talk about the credit approval process, but especially also when we talk about Underwriting pipeline and also for ongoing monitoring as you can see in the lower part of the slide Expectations in this respect would for example Comprise an in-depth review of assumptions made during the due diligence from a macroeconomic as again idiosyncratic perspective which should translate into severe but plausible stress scenarios and Which of course should result in a material impact on the portfolio and Finally the last point we have here on the slide Is what we also would like to highlight the expectations expressed on internal Impairment test triggers. It's important that when we talk here about internal impairment test triggers We are talking really about triggers triggering impairment tests and these triggers are not related to the Impairment test itself as criteria for impairment when in the end within the impairment test these impairment test triggers are Aligned with the EBA and ECB and PL guidance and the triggers which for example are outlined in the guidance are here Yeah breach of course of material financial covenants refinancing of a borrower at an increased leveraged or the case where the borrower's financial situation is actually worse than initially projected in the stress case during the due diligence This is the slide here and now I guess I can pass on to Thank you very much Georg So just to summarize I think what we're trying to achieve here is a consistent and proportionate Response to some of the features Exhibited in this market that we are concerned with In a way that compliments the the bank by bank follow-up that is being done with the teams at that moment and also consistent with previous Examples and particularly the US guidance. So was this I'm very happy to open the floor and take questions Thank you. Hi. My name is Sarah Schmidt. I'm working for the European Banking Federation and Together with the National Banking Association's and the banks we've looked at this guidance So thank you very much for giving us the opportunity to participate here today And I think there are there are two Comments I'd like to to make today Which both refer to the definition the first one would be on SMEs Because of the very low commitment threshold of five million euros We believe that the guidance will include many SMEs IE many clients of commercial and retail banking networks and not necessarily clients of the leveraged finance market So and because of the fact that many of the small companies may find it difficult to provide the data and the information Requested we think they may find it more difficult to get bank finance So I was just wondering why the ECB does not consider further conditions to exclude SMEs in particular via let's say a higher threshold or sales figures or a purpose test or something like that and My second comment refers to level playing field As the guidance only applies to significant institutions. It excludes Many players in the leveraged finance market such as shadow banks for example So we see a risk here that unregulated players may grow as a result which may actually to more systemic risk Okay. Thank you very much On the on the first question So which is the question of inclusion of SMEs basically in the scope of the guidance and I think basically The answer would be would be twofold We are Sort about a full exclusion of SMEs per se from the scope of the guidance but we thought that It's very much dependent on on what you define as a SME and we thought that it will be probably better to address this Through a threshold exclusion and I understand that your comment is that the threshold exclusion is too low And could even incorporate retail clients you mentioned now I would be happy to be a retail client with more than five million financing but I Suppose that indeed we we We can very much tech that comment on board and reflect upon it when finalizing the guidance and indeed I think This is this is something we can think about We have been approaching banks on an informal basis and best effort basis to try and size up What will be the impact on the current definition as proposed in the draft guidance? in On their books based on their books and so far we did not see a lot of movement in what we receive compared to what was Already in force in the banks own definitions We have a little bit of movement and this is this is anticipated and desired That's we have a number of cases where it doesn't move that much that being said This is something we'll take on board for finalizing the guidance And on the on the second aspect on the level playing field. I think there is different Elements to the to the question and to the answer The guidance indeed formally applies to banks that are directly supervised by DCB It doesn't mean of course that It will be without inference on bank that are in their indirect supervision By DCB so the so-called less significant institutions in our dragon That remains supervised by the national competent authorities As you know, we have also a role in trying to foster a consistent Subvise re practices in that field and we will of course Incorporate as we do for all documents that are published in by the by the SSM. We will of course strive to incorporate the content of the finalized guidance on leverage finance into The the role the realm of of less significant institution supervision That being said I would expect in that field a lot of proportionality because obviously most of those institutions would not be big players in the field of leverage finance The second aspect of your question is of course Vis-a-vis non banks and I think this is something that we are confronted with in whatever we do as banks advisors When we talk about about financing and financial markets We have non banks and non non banking actors in those markets. That's a fact of life We have to live with it. It doesn't mean that we are not preoccupied with what Banks are doing and this is what we want to influence primarily That's my my first answer the second answer of course is that we are not deprived from ways of Signaling our concerns when we would have broader concerns We have a number of foreign publications for that and we will as we do for The the seam of the so-called shadow banking in general We will of course not hesitate to signal trends that we would find concerning for the non banks as well in future The third aspect is that we have noted that so far The non bank actors are not so active in syndication and syndication is is one of course big part of the draft guidance and we believe that through our Expectations on syndication practices. We will have a broader influence on the market and Finally when non banks would take Significantly more risk than banks in a particular market After all, maybe this is not such a bad thing for the continuing and smooth financing of this segment Across the cycle Yes, thank you very much also for your presentation. My name is Lena stock. I'm from fish ratings I have a question on the definition of total debt. Would that include Instruments which are such as for example vendor loan shareholder loan pick notes Could you provide maybe more detail is how you define that? Thank you? so so far the definition of Of total net has been very taken from a high-level perspective in the guidance. So We we speak about the depth in general without presizing exactly what type of structure we should we should have in so I Mean that's that's a very interesting comment I'm not able to to get a lot of detail at this stage and give a preliminary answer Or I will treat specifically big notes or shareholders. So if you can maybe give that question as part of the of the public consultation feelings and giving for example you as as a Rating agency, how do you treat these? This instrument as part of your debt calculation would be very helpful So we know that we have certain challenges for example in terms of that calculation that could be the treatment of uncapped Incremental debt But this question is also totally valid So and and we would be keen on receiving especially from from IT that agencies that do that on a ongoing basis your Current treatment, but so far we have not strong view and deciding on exactly what how we should be We have any to refrain from being overly prescriptive on that field With a leave it's important that we see a little bit the guidance developing and how and see how it is implemented in practice Before maybe refining from this time The the field of application the guidance when we will have There is specific questions of implementation or application. I think that's probably the safe way to go at this point in time That being said the question is is very valid Any other questions there is Hi there, my name is max danzman from fresh trees because derringer and What I haven't really understood so far when I read the guidance is and how would you deal with? typical acquisition finances in which There is a bitco and a target group company that has the everyday DA Quite well and wouldn't cause the leverage threshold to be Triggered and the bitco doesn't have any leverage at all with the whole group be subject to the guidance or do you have to make sure that the borrower that actually Utilizes the loan has The ebt a or can you just because it is actually Triggered on a consolidated basis or looked at in a consolidated basis Just use the loan or utilize the loan wherever it fits the best and you don't have to Worry about ebt a thresholds and stuff like that So currently the I understand the question on the at which level do we calculate the debt to a bid that trigger? at least that's one part of your of your question and The standard we have is that you calculate The debts really that ratio at the at the consolidated level of the borrower So for example if you have a very wide group with very different sub entities and that each sub entities are Asking different banks to finance Every one of them will have a debt to a bid that threshold the one that we use is the one on the holding the one on the consolidated On the consolidated Parent then I also understand a second part of your question which pertains to whether we What happened in a situation where the borrower is leveraged but the SPV used for the transaction is not is this correct understanding? Mitry think that the first time that we have the the question very ultimately I think it makes more sense to look at the borrower and the ultimate Counterparties that benefits from from from the loan but that's a preliminary answer But I understand it makes sense to actually look at the ultimate borrower so but but in a syndicated loan with several obligors you have a Lot of different entities and would you look at each single loan? like if you have like In loan loan amounts of all together 200 million and there is one loan being drawn of four million for instance by one borrower and The rest of of of the entire loan would be Utilized by others with that one loan Because it is below the five million threshold not considered to be a leveraged loan and all the others are like how would that play together? Or would you say as long as there is one loan in in the whole? Financing syndicate financing the entire thing becomes a leverage transaction I will tackle this question a bit more globally So and rephrase it in a way is it possible that one borrower has at the same time some leverage transaction and not leverage transactions And this is possible. So let me give you a very hypothetical example, but you have a Corporate that do oil and gas Transaction and that has two credit lines for financing its its needs one traditional corporate lines and one boring base the boring base because it's excluded from the From the guidance will not be taken Will not be part of the exposure that we expect to be reported it's secure by a specific collateral and so on But the traditional corporate lines could be so at the same time it is from a theoretical perspective We don't expect that to happen that often Having a leverage transaction and a non leverage transaction as part of a more global leverage borrower's I Think that's it's a fair question and we will try to reflect that in the answer that we will Give to the comments received on that part Sergio Lugarese Italian Banking Association There is a third dimension of the issue of Leven playing field that which is Leven playing field in the US market you have mentioned the regulation of the US Authorities which inspires this regulation, but there are some differences I want to draw the attention to two to one and that that is the the definition of a bit da Which is an adjusted in in the draft guideline Whereas it is adjusted in the US so I would like to ask why and the same way why the definition of debt Is gross it does not exclude the the cash that can be quite relevant in Yeah, so on this is If we go back maybe to slide seven, this is two of the the points that we flag and we are particularly interested on receiving comments as part of the public consultation on the Unadjusted a bit just to give a little bit of rationale of why we went for an adjusted knowing that in did the US guidance Loads for using the adjusted I think the question we are having and we are very interested in getting views on this is how do we ensure? consistent treatment across banks and level playing field when we would use an Adjusted definition. Let me remind you that in the US There is something called a share national credit process where the US agencies put together a number of supervisors on a yearly basis and go on the line by line analysis of major transactions and In as part of that review. They are sometimes led to Make comments on the the level of a bidda as being reported to them by the banks That is one and on the level of credit quality. I understand on those transactions and We do not have at least for the time being in the SSM such a mechanism We will look at enforcement of the guidance and the application of the guidance Through a regular on-site inspections, but by definitions these are bank specific And it will not apply always at the same time for all banks in that are being subject to the guidance and The the teams the GSTs will follow up on the on the regular basis But probably not to the level of detail the going all the time on transaction by transaction basis So that led us to conclude that in the European context, it would be probably safer from the point of view of consistent treatment of banks and maybe also from the point of view of simplicity of reporting to use an adjusted a bidda and I would also mention maybe Quickly that We would be keen in understanding what is the general direction of adjustments I Would imagine that it tends to go to lower a bidda rather than a higher a bidda on average Which I can understand So we thought that all in all it would be more practical and and and more consistent again In the way we deal with banks to go for an adjusted I Want to make it clear again The the two metrics we use the four times and six times a bidda are exactly Equivalence to what is in the US guidance? So it's just the definition of course of adjusted non-adjusted and The sixth time is not does not mean prohibition It's it's important to note We just want to make sure that senior management and the highest level of credit analysis in banks is aware of the risks are being taken in that field and Are making sure that this is consistent with risk appetite Assets by the governance of the banks. This is what we want to make sure of so We we thought that it would not be such an issue We have since the launch of the public consultation We came to understanding that it was a little bit of a of a pressure point. So we are happy to receive Comments and suggestions in that respect again, it would be Very much appreciated to understand in which way you going for an adjusted a bidda would ensure consistent treatment of banks That's that's something that as you know is important to us we nevertheless understand that that may cause some some reporting difficulties if banks would have to report the same transaction to the US on an adjusted basis and and to us on on an Unadjusted basis. So that's something we are we are happy to to discuss and dig further in That's again to explain you the rationale and we will we are happy to receive reasoned comments in that in that respect the second one is the Total depth definition and the netting with cash our understanding is that the US definition is is using a non Nated metric But we are happy to be to be contradicted on this and if We receive specific comments in that respect. We will we will look at them I would just point to the fact that Calculated at in such calculating at in sanction an a bidda metric net of cash might be slightly Optimistic or misleading in times of crisis, of course because the cash may have Finished at that time. So maybe it makes more sense to calculate Gross of of cash Hello, Pascal and from a unique credit group So my question would be is the overarching aim of this guidance to identify and to monitor a high risk portfolio and If so should investment grades companies be excluded because per definition and by On the basis of other criteria. They are low risk So I understand your question on whether we could have on top of the definition a kind of rating trigger that would say investment grade or our out of the scope of leverage transaction and Yeah, non investment grade would still be part of the leverage transaction I mean exactly because for example, we have very often we have utilities Which is very very stable? Regulation is very very stable and they they always have a leverage of four times or above. So it's and they are Investment grade companies and of course other factors which can be taken into consideration rather than only leverage Okay, so so we treat the the question of utilities in the in the second part of my question but we made the choice at the beginning to not rely on on Rating trigger because it's also what it's also consistent with what the US does actually in their guidance and not relying on On a rating trigger to define what it's in what it's out That being said we would expect some kind of alignment between in most of the case Between the rating and the fact that the borrower is indebted more than four times So meaning that we would expect that the major share of what we capture is actually in on investment grade and when it comes to two specific example of Of you mentioned utilities, but it could be also stuff of exposure that deserve exclusion because because The rating or the collateral that they have have Have a better quality. We would be keen on receiving exactly a detailed reasoning on why This should be excluded. It is something different in terms of risk. Is this something? I'm sure that the rating agencies use some some criteria to make them investment grade despite of their high leverage. So We we happy to to to understand on on a very very granular details type of activity that you didn't needs to be excluded, but so far That we didn't use a rating trigger and also as part of our objective to be consistent with the US To reinforce that point. I think This is typically a case where we could have in introduce a rating trigger but we we thought to be consistent with the US definition precisely for in Yes, and with the previous question. So This is something we could consider Again, we're not sure it would be a big mover in terms of what would be captured as part of the division or not Probably with the exception of utilities And We are happy again to receive detailed reasoning or on on on which ground we could exclude utilities Maybe because the cash flow profile is dependent on a long-term contracts That have some sort of security just hinting at possible exclusion mechanism So, yeah Comments welcome on that part. Thank you very much Hey, my name is Nicholas library. I come from alberos and myself In your presentation you mentioned that all the Transaction that exceed the six six times that threshold should involve separate or specifics in your management involvement and In the draft guidance you said that those Those transactions should be exceptional and specifically Justified now my question would be do you have a specific expectation or some kind of a catalog that you would like to see us? Justifications for those exceptions or is this something that should develop over time? No, we we we don't have an ex ante catalog of expectations or The kind of box-ticking template that you should fill in on the transaction by transaction basis we believe that it's best left to the way banks organize their risk management and Again, what we want to achieve with this is making sure that there is a clear understanding of the type or and and Quantum of risk being taken in those specific transactions because we believe that they go into a territory that is Much riskier than than other tradition more traditional them that Transactions and that it is important that that there is full awareness at the highest level of credit approval in the banks how this is done and and how this is implemented we we think it better to leave it To the banks for the time being and of course over time We may see practices developing that we will consider to be best practices and we may complement all over time But I think for the time being it would not be completely reasonable to go with very Deep prescriptions on on that respect Of course depending on the volume is associated that That might and depending on the existing organization of banks that might Involve a number of steps and we believe it's it's it should be Fully embedded into the risk management structure of the banks rather than something a bit artificial That is being done just for the supervisor. That's Far from being the objective Hi, Alessandro Calaccio Goldman Sachs Two questions on something you mentioned earlier. I understand that the six times leverage Threshold is not intended to be a bright line for prohibiting transactions. What about the cash flow test? I mean, there's an expectation of minimum cash flow projections and second question is how do you Think about how do you think about? Borrowers who find themselves today in a situation where they have too much debt Relatives to their kept projected cash flows and how do you think about allowing these borrower access to credit? For refinancing or for maturity extension? Thank you. Thank you Yes, it's a very interesting question. So the the cash flow tests we don't see it as a bright line either we see it as a trigger for Considering whether there is a need to consider that a transaction should be impaired and should be considered as being in default But I'm not sure that that could be regarded as a bright line. So as a kind of automatic A recognition default recognition or automatic impairment trigger We are fully aware of course that there are other factors to consider it is Like projection of future cash flows. What are the trends in the business model of? of the corporate and What are the the trends in the economy? Economic environment, etc. So there are probably a number of Also elements to to take into account that being said of course that when we will have our on-site teams going to the banks I would expect that this is one of the first things They ask for when they would look at leverage finance and they will probably just ask for the number of transactions Being in that category and look at how banks have Assessed the need for default recognition or or impermanent But again, this will not be a bright line Hello, my name is Julian Cy from linklators Other guidelines supposed to only capture loans or also other dead instruments I think at some place within the guidelines you mentioned bonds as well The the answer is quite simple that's loans only We're not capturing high bonds or derivative as part of the scope that Use for defining what is in or what is out of the of the guidance. So it's loans It could be wearer's loans for example, but that's only loans at some point we do mention high bonds and it comes with with the fact that We say that the guidance is valid for loans, but some expectation could be useful for other type of Type of instruments so for example what we say on on syndication and In terms of due diligence could be true for for bonds as well. So the bonds are not mean to be captured as part of the of the transaction most of the Expectation applies only to loans And therefore should not be reporting as part of the exposure captured Not not either not either maybe one one one point to to complement We are of course aware that there might be over time substitution effects so we will because because we understand that Loans tend to exhibit more and more some of the characteristics of bonds and so This is something we will be Interested in monitoring going further. So we will also look at bonds issuances and investments by banks and warehousing pipelines etc and and see how Both markets are developing over time if there are no more questions we'd like to thank you very much for your interest for asking a lot of questions and Wish you a nice weekend. Thank you very much again. We are hoping that we get Contributions that will help us in finalizing the guidance. Thank you