It was probably mission impossible, but we gamely tried this week to complete a personal Top Ten list. This one is called “Top Ten Best Things About Rupturing Your Quadriceps Tendon in Church on Father’s Day.” #10 came quickly. “The minister was right there to deliver last rites.” #9 was relatively easy: “A brand-new walker…
“Capital is destiny.” We’re not sure this pronouncement will make it into the next edition of Bartlett’s Familiar Quotations, but the notion sprung to mind as we recently addressed a top business school class. Topic? How private equity sponsors finance leveraged buyouts. To show students how debt markets work, we discussed how issuers benefit when…
“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…
It’s not surprising so much fuss has been made about the proliferation of cov-lite structures in the leveraged loan market. After all, what was the exception even among larger issuers has become the rule (see our Chart of the Week). Indeed this trend has been growing since 2013 when almost 60% of loan volume lacked…
At a recent debt conference we did what most of our direct lending colleagues are doing these days: complain. Speaking with one long-time practitioner, we mentioned a middle market transaction which was both cov-lite and ebitda adjustment-heavy. “Yeah, it’s ridiculous,” he said. “But it’ll get done.” Therein lies the problem. As we discussed last week, loan…
An astute Lead Left reader appreciated the first part of our special series on covenants. He alerted us to a ironic development Friday in the high-yield bond market. According to Bloomberg, bondholders of the commodities trader, Noble Group, saw values drop below 50 cents on the dollar on a negative earnings surprise. Apparently the bonds…
It’s a fact of life in leveraged lending that terms are market-driven. During periods of excess liquidity – when loan demand exceeds supply – structures become issuer-friendly. When investors pull back, for any reason, terms swing in favor of lenders. When concerns about China and commodities roiled markets in August 2015, the Dow dropped 2000…
“We can do this the easy way or the hard way.” “What’s the hard way?” “It’s harder. It’s harder than the easy way. That’s what I know.” This classic exchange between Benicio Del Toro and Alicia Silverstone in the otherwise forgettable 1997 comedy Excess Baggage came to mind as we followed recent developments in the…
As we wrap up our special series on corporate risk, let’s review the elements we’ve covered. We began with integration risk and high capex. We then examined cyclicality and specialized sectors. Our third part covered short borrower histories, hockey stick growth, single products, and customer concentrations. Technology, regulatory, and legal risks followed that, as well…
Being in an industry prone to litigation is one of the trickiest corporate risks to manage. For one thing, lawsuits and class action claims aren’t under a borrower’s control. For another, judges and juries can be fickle. In dealing with a similar issue, they might hammer one defendant with major damages while letting another off…