POLL: the risky business of cov-lite

Author: Amélie Labbé | Published: 29 May 2018

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.

Light touch

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," he said.