The Case for Covenants (Last of a Series)
“When things are good, people don’t pay attention to covenants, but when things go sour, covenants are their only line of protection.”
So said one head of credit research of a large asset manager in a recent Bloomberg article. He was referring to bond covenants, but the lesson applies equally to loans. And things have certainly been good. But how long will good last?
It’s clear some managers are betting conditions will be constructive for credit for a while. Cash continues to flow into the broadly syndicated market via retail funds and new CLO vehicles, as well as the middle market from managers’ fundraising. Interest rates remain low, default rates modest, and the economy steady, if uninspiring.
QUOTE OF THE WEEK
“Nothing is cheap, everything is overvalued, and it’s very hard to find good opportunities.”
– Kathleen Gaffney, manager, Eaton Vance Multisector Income Fund
Despite growing cov-lite activity in the middle market, levels remain below those in early 2014.
Lead Left Spotlight
Tess Virmani
SVP and Associate General Counsel
Loan Syndications and Trading Association (LSTA)
"Fed, OCC, and FDIC have worked to be more aligned, so there's less "regulator arbitrage"."
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Chris Ullman
Managing Director & Director of Global Communications
The Carlyle Group
"Everyone has a whistle. You just have to find it."
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David Brackett
Managing Partner and Co-CEO
Antares Capital
"Private BDCs appear to be the better route these days but we’re still early in the process of analyzing the opportunity."
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Ted Bililies
Managing Director & Chief Talent Officer
AlixPartners
"Twenty-first century leadership is all about being able to motivate, inspire, and develop talent. That’s how the best firms succeed."
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Mitch Drucker
Managing Director
Garrison Investment Group
"We believe that to succeed in this market, a team needs to be diversified, cycle-tested and at the right place in the capital structure."
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Stephen Boyko
Partner
Proskauer
"The increase in leverage is likely driven by high purchase price multiples and relatively stable equity contributions by private equity sponsors."
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Review of Current Market Conditions/ Analysis of Capital Markets Metrics Including Covenants, Pricing, and Leverage/ Review of Credit Quality/ Outlook for First Quarter 2017
Review of Current Market Conditions/ Analysis of Capital Markets Metrics Including Covenants, Pricing, and Leverage/ Review of Credit Quality/ Outlook for First Quarter 2017
Beginning in September 2016 The Lead Left published a series of articles on sponsors. This report consolidates those articles.
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