19424 Federal Register / Vol. 77, No. 62 / Friday, March 30, 2012 / Notices 

quantifiable objectives and measureable time 

frames. Actions may include working with 

the borrower for an orderly resolution while 

preserving the institution’s interests, sale of 

the credit in the secondary market, or 

liquidation. Problem credits should be 

reviewed regularly for risk rating accuracy, 

accrual status, recognition of impairment 

through specific allocations, and charge-offs. 

Deal Sponsors 

Institutions should develop guidelines for 

evaluating the qualifications of financial 

sponsors and implement a process to 

regularly monitor performance. Deal 

sponsors may provide valuable support to 

borrowers such as strategic planning, 

management, and other tangible and 

intangible benefits. Sponsors may also 

provide a source of financial support for a 

borrower that fails to achieve projections. 

Institutions generally rate borrowers based on 

their analysis of the borrowers’ standalone 

financial condition. However, lending 

institutions may consider support from a 

sponsor in assigning an internal risk rating 

when the institution can document the 

sponsor’s history of demonstrated support as 

well as the economic incentive, capacity, and 

stated intent to continue to support the 

transaction. However, even with documented 

capacity and a history of support, a sponsor’s 

potential contributions may not mitigate 

examiner criticism absent a documented 

commitment of continued support. An 

evaluation of a sponsor’s financial support 

should include the following: 

• Sponsor’s historical performance in 

supporting its investments, financially and 

otherwise. 

• Sponsor’s economic incentive to 

support, including the nature and amount of 

capital contributed at inception. 

• Documentation of degree of support (e.g., 

guarantee, comfort letter, verbal assurance). 

• Consideration of the sponsor’s 

contractual investment limitations. 

• To the extent feasible, a periodic review 

of the sponsor’s financial statements and 

trends, and an analysis of its liquidity, 

including the ability to fund multiple deals. 

• Consideration of the sponsor’s dividend 

and capital contribution practices. 

• Likelihood of supporting the borrower 

compared to other deals in the sponsor’s 

portfolio. 

• Guidelines for evaluating the 

qualifications of financial sponsors and a 

process to regularly monitor performance. 

Credit Review 

Institutions should have a strong and 

independent credit review function with a 

demonstrated ability to identify portfolio 

risks and documented authority to escalate 

inappropriate risks and other findings to 

senior management. Due to the elevated risk 

inherent in leveraged finance, and depending 

on the relative size of an institution’s 

leveraged finance business, it may be prudent 

for the institution’s credit review function to 

examine the leveraged portfolio more 

frequently than other segments, go into 

greater depth, and be more selective in 

identifying personnel to assess the 

underlying transactions. Portfolio reviews 

should generally be conducted at least 

annually. For many institutions, the risk 

characteristics of the leveraged portfolio, 

such as high reliance on enterprise value, 

concentrations, adverse risk rating trends, or 

portfolio performance, may dictate more 

frequent reviews. 

Institutions should staff their internal 

credit review function appropriately and 

ensure that it has sufficient resources to 

ensure timely, independent, and accurate 

assessments of leveraged finance 

transactions. Reviews should evaluate the 

level of risk and risk rating integrity, 

valuation methodologies, and the quality of 

risk management. Internal credit reviews also 

should encompass a review of the 

institution’s leveraged finance practices, 

policies and procedures to ensure that they 

are consistent with regulatory guidance. 

Conflicts of Interest 

Institutions should develop appropriate 

policies to address and prevent potential 

conflicts of interest. For example, a lender 

may be reluctant to use an aggressive 

collection strategy with a problem borrower 

because of the potential impact on the value 

of the lender’s equity interest. A lender may 

receive pressure to provide financial or other 

privileged client information that could 

benefit an affiliated equity investor. Such 

conflicts also may occur where the 

underwriting bank serves as financial advisor 

to the seller and simultaneously offers 

financing to multiple buyers (i.e., stapled 

financing). Similarly, there may be 

conflicting interests between the different 

lines of business or between the institution 

and its affiliates. These and other situations 

may arise that create conflicts of interest 

between the institution and its customers. 

Policies should clearly define potential 

conflicts of interest, identify appropriate risk 

management controls and procedures, enable 

employees to report potential conflicts of 

interest to management for action without 

fear of retribution, and ensure compliance 

with applicable law. Further, management 

should establish responsibility for training 

employees on how to avoid conflicts of 

interest, as well as provide for reporting, 

tracking, and resolution of any conflicts of 

interest that occur. 

Anti-Tying Regulations 

Because leveraged finance transactions 

often involve a number of types of debt and 

several bank products, institutions should 

ensure that their policies incorporate 

safeguards to prevent violations of anti-tying 

regulations. Section 106(b) of the BHC Act 

Amendments of 1970 prohibits certain forms 

of product tying by banks and their affiliates. 

The intent behind section 106(b) is to prevent 

institutions from using their market power 

over certain products to obtain an unfair 

competitive advantage in other products. 

Reputational Risk 

Leveraged finance transactions are often 

syndicated through the bank and 

institutional markets. An institution’s 

apparent failure to meet its legal or fiduciary 

responsibilities in underwriting and 

distributing transactions can damage its 

reputation and impair its ability to compete. 

Similarly, institutions distributing 

transactions that over time have significantly 

higher default or loss rates and performance 

issues may also see their reputation damaged 

in the markets. 

Securities Laws 

Equity interests and certain debt 

instruments used in leveraged finance 

transactions may constitute ‘‘securities’’ for 

the purposes of federal securities laws. When 

securities are involved, institutions should 

ensure compliance with applicable securities 

laws, including disclosure and other 

regulatory requirements. Institutions should 

also establish procedures to appropriately 

manage the internal dissemination of 

material nonpublic information about 

transactions in which it plays a role. 

Compliance Function 

The legal and regulatory issues raised by 

leveraged transactions are numerous and 

complex. To ensure that potential conflicts 

are avoided and laws and regulations are 

adhered to, an independent compliance 

function should periodically review an 

institution’s leveraged finance activity. 

Additional information is available in the 

Agencies’ existing guidance on compliance 

with laws and regulations. 

Conclusion 

Leveraged finance is an important type of 

financing for the economy, and the banking 

industry plays an integral role in making 

credit available and syndicating that credit to 

investors. Institutions should ensure they do 

not heighten risks by originating poorly 

underwritten deals that find their way into a 

wide variety of investment instruments. 

Therefore, it is important this financing be 

provided to creditworthy borrowers in a safe 

and sound manner that is consistent with 

this guidance. 

Dated: March 19, 2012. 

John Walsh, 

Acting Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, March 22, 2012. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, this 26th Day of 

March 2012. 

Federal Deposit Insurance Corporation. 

Valerie J. Best, 

Assistant Executive Secretary. 

[FR Doc. 2012–7620 Filed 3–29–12; 8:45 am] 

BILLING CODE 4810–33– 6210–01– 6714–01–P 

DEPARTMENT OF THE TREASURY 

Bureau of the Public Debt 

Proposed Collection; Comment 

Request 

ACTION: Notice and request for 

comments. 

SUMMARY: The Department of the 

Treasury, as part of its continuing effort 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 77, No. 62 / Friday, March 30, 2012 / Notices 19425 

to reduce paperwork and respondent 

burden, invites the general public and 

other Federal agencies to take this 

opportunity to comment on proposed 

and/or continuing information 

collections, as required by the 

Paperwork Reduction Act of 1995, 

Public Law 104–13 (44 U.S.C. 

3506(c)(2)(A). Currently the Bureau of 

the Public Debt within the Department 

of the Treasury is soliciting comments 

concerning the Application For 

Disposition Of Retirement Plan and/or 

Individual Retirement Bonds Without 

Administration Of Deceased Owner’s 

Estate. 

DATES: Written comments should be 

received on or before May 30, 2012 to 

be assured of consideration. 

ADDRESSES: Direct all written comments 

to Bureau of the Public Debt, Bruce A. 

Sharp, 200 Third Street A4–A, 

Parkersburg, WV 26106–1328, or 

bruce.sharp@bpd.treas.gov. The 

opportunity to make comments online is 

also available at www.pracomment.gov. 

FOR FURTHER INFORMATION CONTACT: 

Requests for additional information or 

copies should be directed to Bruce A. 

Sharp, Bureau of the Public Debt, 200 

Third Street A4–A, Parkersburg, WV 

26106–1328, (304) 480–8150. 

SUPPLEMENTARY INFORMATION:

Title: Application For Disposition Of 

Retirement Plan and/or Individual 

Retirement Bonds Without 

Administration Of Deceased Owner’s 

Estate. 

OMB Number: 1535–0032. 

Form Number: PD F 3565. 

Abstract: The information is used to 

support a request for disposition by the 

heirs of deceased owners or Retirement 

Plan and/or Individual Retirement 

bonds. 

Current Actions: None. 

Type of Review: Extension. 

Affected Public: Individuals or 

Households. 

Estimated Number of Respondents: 

350. 

Estimated Time Per Respondent: 20 

minutes. 

Estimated Total Annual Burden 

Hours: 117. 

Request for Comments: Comments 

submitted in response to this notice will 

be summarized and/or included in the 

request for OMB approval. All 

comments will become a matter of 

public record. Comments are invited on: 

(a) Whether the collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information shall have practical utility; 

(b) the accuracy of the agency’s estimate 

of the burden of the collection of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information to be collected; (d) ways to 

minimize the burden of the collection of 

information on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology; and (e) estimates of capital 

or start-up costs and costs of operation, 

maintenance, and purchase of services 

to provide information. 

Dated: March 26, 2012. 

Bruce A. Sharp, 

Bureau Clearance Officer. 

[FR Doc. 2012–7603 Filed 3–29–12; 8:45 am] 

BILLING CODE 4810–39–P 

DEPARTMENT OF VETERANS 

AFFAIRS 

Prescription Drugs Not Administered 

During Treatment; Update to 

Administrative Cost for Calendar Year 

2012 

AGENCY: Department of Veterans Affairs. 

ACTION: Notice. 

SUMMARY: This Department of Veterans 

Affairs (VA) notice informs the public of 

the updated ‘‘National Average 

Administrative Costs’’ for purposes of 

calculating VA’s charges for 

prescription drugs that were not 

administered during treatment but were 

provided or furnished by VA to a 

veteran for: A nonservice-connected 

disability for which the veteran is 

entitled to care (or the payment of 

expenses of care) under a health plan 

contract; a nonservice-connected 

disability incurred incident to the 

veteran’s employment and covered 

under a worker’s compensation law or 

plan that provides reimbursement or 

indemnification for such care and 

services; or a nonservice-connected 

disability incurred as a result of a motor 

vehicle accident in a State that requires 

automobile accident reparations 

insurance. This updated administrative 

cost charge was effective on January 1, 

2012, for Calendar Year 2012. 

FOR FURTHER INFORMATION CONTACT: 

Romona Greene, Chief Business Office 

(10NB1A), Veterans Health 

Administration, Department of Veterans 

Affairs, 810 Vermont Avenue NW., 

Washington, DC 20420, (202) 461–1595. 

This is not a toll free number. 

SUPPLEMENTARY INFORMATION: Section 

17.101 of title 38, Code of Federal 

Regulations, sets forth VA’s medical 

regulations concerning the collection or 

recovery by VA for medical care or 

services provided or furnished to a 

veteran for a nonservice-connected 

disability. As provided in 38 CFR 

17.101(m), when VA provides or 

furnishes prescription drugs not 

administered during treatment for: (1) A 

nonservice-connected disability for 

which the veteran is entitled to care (or 

the payment of expenses of care) under 

a health plan contract; (2) a nonserviceconnected disability incurred incident 

to the veteran’s employment and 

covered under a worker’s compensation 

law or plan that provides 

reimbursement or indemnification for 

such care and services; or (3) a 

nonservice-connected disability 

incurred as a result of a motor vehicle 

accident in a State that requires 

automobile accident reparations 

insurance, ‘‘charges billed separately for 

such prescription drugs will consist of 

the amount that equals the total of the 

actual cost to VA for the drugs and the 

national average of VA administrative 

costs associated with dispensing the 

drugs for each prescription.’’ 

Section 17.101(m) includes the 

methodology for calculating the national 

average administrative cost for 

prescription drug charges not 

administered during treatment. The 

administrative cost is determined 

annually using VA’s managerial cost 

accounting system. Under this 

accounting system, the national average 

administrative cost is determined by 

adding the total VA national drug 

general overhead costs (such as costs of 

buildings and maintenance, utilities, 

billing, and collections) to the total VA 

national drug dispensing costs (such as 

costs of the labor of the pharmacy 

department, packaging, and mailing) 

with the sum divided by the actual 

number of VA prescriptions filled 

nationally. The labor cost also includes 

cost for the professional activity of 

reviewing and dispensing a 

prescription. 

Based on this accounting system, VA 

will determine the amount of the 

national average administrative cost 

annually for the prior fiscal year 

(October through September) and then 

apply the charge at the start of the next 

calendar year. The national average 

administrative cost for calendar year 

2012 is $12.39 and was effective on 

January 1, 2012. 

This notice will be posted at http:// 

www1.va.gov/CBO/apps/rates/index.asp 

under the heading ‘‘Federal Registers, 

Rules, and Notices’’ and identified as 

‘‘Administrative Charge Federal 

Register Notice, CY 2012.’’ Following 

this Federal Register notice, all 

subsequent Federal Register notices 

providing updates on the administrative 

charge will be published in conjunction 

with the Federal Register notices 

mstockstill on DSK4VPTVN1PROD with NOTICES