Cov-lite makes lending more streamlined and
efficient for borrowers, but at what cost?
Is the widespread use of cov-lite making the leveraged
lending market riskier than before the financial crisis?
Before the financial crisis, under one-third of
agreements included covenant-light (more commonly referred to
as cov-lite) provisions, a figure which has now risen to over
80%. This type of agreement is increasingly becoming a template
across the board, in some of the most senior types of debt and
for all types of companies, even those with ratings that would
not necessarily make lenders rush in.
A few years ago, only the best types of credits used to
command cov-lite terms. Now, according to said Steve Wilkinson,
senior director, corporate ratings at S&P, it's nearly all
loans, even many that are deemed problematic. "Other
restrictions on what borrowers can do are also under pressure,"