Monday, September 23, 2013

Make Mine a Lite, Please

Cov-lite lending is back, and setting records, according to Reuters:
Huge demand for leveraged loans from billions of dollars flowing into U.S. loan funds pushed covenant-lite loan volume to a record $188.7 billion, far surpassing the record of 2007, and still going strong.
Demand for yield by investors is so high now that cov-lite loans are close to becoming the standard, according to the report; covenants in a debt deal are now viewed as a sign that the borrower is risky. Also, credit quality is going down:
As lending to lower-rated companies has increased generally, more of them are also opting for covenant-lite financings.That trend is evident particularly in the B3 ratings category. Around 18 percent of covenant-lite loans are for B3 rated companies so far this year, versus 8 percent in 2012 and 3.7 percent in 2011.