Goldman Sachs seeks Volcker Rule mezzanine fund exemption

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As the clock continues to run in the Fed’s effort to hammer out the final Volcker Rules, we’re seeing some interesting skirmishing.

Goldman Sachs, for example, has impressed upon the Fed its views regarding the rule’s restrictions on proprietary investments in terms of mezzanine funds. GS Mezzanine Partners offers mezzanine debt to “mid- to large-sized leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for clients such as private equity firms, private family companies and corporate issuers.”

High-yield debt across the spectrum has been in relatively heavy demand as of late. Bloomberg reports that Goldman Sachs representatives met with Fed staff and “recommended that the Volcker rule should allow banks to own more than 3 percent of a credit fund as long as the fund is ‘predominantly engaged’  in extending credit, originating or acquiring loans and doesn’t employ ‘excess’ leverage….The exception also should require that the funds’ strategy is to hold loans for at least three years, that they only use derivatives to hedge interest rate and currency risk, and that the funds’ obligations aren’t guaranteed or supported by the sponsoring banking entity.”

This all sounds reasonable, but from an implementation point of view, you run into some of the same issues that critics of the rule have raised more broadly. How do you enforce all this? And how do you define “excess"?

For more:
- here’s the article

Related article:
Goldman Sachs might benefit from Volcker Rule