Cov-lite leaves borrowers happy and lenders gloomy

Author: Jimmie Franklin | Published: 9 Aug 2019

It used to be that lenders would distribute loans with covenants to ensure that their investments were mostly risk free. Those days are, however, long gone in a market dominated by cov-lite loans.

In 2015, cov-lite loans made up 27.2% of the market. By 2018, they would make up 83.3% of the market, with a further increase to 85.7% so far this year.

"The benefits are from the borrowers’ perspective," said Allen and Overy partner, Matt Moore.

Borrowers now have more control in comparison to what they could expect from previous packages. Traditional loans had large amounts of covenants, which put power almost wholly in the hands of the lenders.

See also: POLL: the risky business of cov-lite

"In the 90s, lenders would have looked to the financial covenants to assess the debtor’s performance and effectively give early warning triggers about when a business performance of a...