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.



“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"."

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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


"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



"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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