Sponsors lose post-crisis loan covenants

Author: Danielle Myles | Published: 25 Oct 2011

Leveraged loan covenants are showing banks’ hesitancy to finance all but the strongest of credits. More robust market flex terms and bigger equity checks have characterised deals coming to market during summer.

US counsel agree with yesterday’s WSJ report and its claim that banks are returning in the strongest sponsor deals, but the Euro debt crisis has taken its toll on US confidence, and banks are putting a lot of pressure on loan terms.

"Banks are being a lot more cautious in terms of what they are willing to finance," said Daniel Dokos, chair of Weil Gotshal & Manges’ finance practice. "I’ve not seen a big run to covenant lite."

Covenant-lite disappeared around August, making negotiations vastly different to six months ago. "Pressure from prospective syndicate members is being put on certain sponsor bells and whistles that did not receive much scrutiny earlier in the...