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.

screen-shot-2016-12-07-at-10-22-08-am

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

Chart of the Week: High Lites

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"."

Read Interview

Chris Ullman

Managing Director & Director of Global Communications

The Carlyle Group

"Everyone has a whistle. You just have to find it."

Read Interview

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."

Read Interview

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."

Read Interview

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."

Read Interview

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."

Read Interview

Read more interviews

Subscribe Now!

Join the leading voice of the middle market. Try us free for 30 days. Click here to view the Newsletter sample.

What is the Lead Left?

4

  • One-stop source for deals and data
  • Market trend commentary and analysis
  • Exclusive interviews with thought leaders

Subscribe now

View Article By

Features

Leveraged Loan Insight & Analysis – 6/19/2017

Middle market sponsor-backed issuers are seeing fewer repricings than large corp. issuers Private equity shops have taken advantage of strong liquidity in the loan market to refinance/reprice many of their portfolio companies into longer dated maturities, looser structures and cheaper pricing....

View Article

The Pulse of Private Equity – 6/19/2017

Exit multiples have stayed steady at an elevated level View PitchBook’s 2017 PE & VC Exits Here Slowly but surely, exit multiples for secondary buyouts and corporate acquisitions have risen over the past two years, with figures for the former topping off at 9.4x last year. Thus far in 2017, the aggregate figure for all transaction

View Article

Private Debt Intelligence – 6/19/2017

Private Debt Funds’ Time on the Road Preqin here compares the time spent on the road by private debt and buyout funds currently in market. This demonstrates that although buyout funds are more likely to experience a quick fundraising process, they are also more likely to remain in market for several years. ...

View Article

Leveraged Loan Insight & Analysis – 6/12/2017

Middle market fundraising firing on all cylinders in 2017 Money continues to pour into the middle market in a myriad of ways. For starters, 2017 is going to be the strongest year for middle market CLO formation since the credit crisis. Year to date $7.3 billion in middle market CLOs have priced, not too far...

View Article

Middle Market Deal Terms at a Glance

provided by

spp capital partners logo

State of the Capital Markets – First Quarter 2017 Review and Second Quarter 2017 Outlook

Review of Current Market Conditions/ Analysis of Capital Markets Metrics Including Covenants, Pricing, and Leverage/ Review of Credit Quality/ Outlook for First Quarter 2017

State of the Capital Markets – Fourth Quarter 2016 Review and First Quarter 2017 Outlook

Review of Current Market Conditions/ Analysis of Capital Markets Metrics Including Covenants, Pricing, and Leverage/ Review of Credit Quality/ Outlook for First Quarter 2017

Special Report: Why Sponsors Matter

Beginning in September 2016 The Lead Left published a series of articles on sponsors. This report consolidates those articles.