Regulators bash Goldman over UFC loan

Federal Reserve regulators reprimanded Goldman Sachs a second time for flouting lending guidelines in a risky debt deal it arranged for the $4 billion buyout of UFC.

The rebuke came after the bank appealed an earlier risk warning from the regulators, according to people with knowledge of the matter who asked not to be identified as it is private. The regulator now considers it a substandard loan, the people said. That’s a lower rating than the Fed’s prior classification of the deal as a so-called special mention, which was based on its concerns over accounting adjustments that inflated cash flow projections for the mixed martial arts promoter.

Representatives for Goldman Sachs and the Fed declined to comment. Deutsche Bank AG, which was the lead underwriter for the junior portion of the deal, has also been notified by regulators that the deal is substandard, the people said. A representative for Deutsche Bank declined to comment.

Regulators have been clamping down on risky lending practices by Wall Street’s biggest banks for more than three years. The latest censure shows they’re not prepared to concede ground even for deals that investors are more than willing to buy, and comes even as President-elect Donald Trump’s administration vows to roll back Wall Street regulations.

One portion of UFC’s loan offering drew investor orders for more than four times what was being sold as yield-hungry money managers clamored to buy a piece of the deal in August. The company raised $1.4 billion in first-lien and $425 million of second-lien loans after boosting the senior debt on offer, and the loans are trading above their sale price.