Growth of cov-lite impacts companies' IPO plans

Author: Amélie Labbé | Published: 10 May 2018

Covenants are becoming more flexible for borrowers as they shift attention from initial public offerings (IPOs) to private lending in 2018.

Banks, which are have been the traditional go-to lenders in many European jurisdictions, are seeing their position challenged by private debt funds. Because private equity firms operate in a more loosely regulated area, they can provide more flexible terms (so-called cov-lite) which is driving competition in the EU and US markets.

As such, more companies are putting off going down the IPO route in favour of seeking out alternative sources of capital. In particular, the availability of more flexible terms of private funding, fuelled by the growth of cov-lite agreements, has increased the average time to IPO from five or six years in the 1990s to nearly 10 at present.