This week we continue our conversation with Steven Miller, CEO, Fulcrum Financial Data. Fulcrum publishes Covenant Review, CapitalStructure and PacerMonitor and has recently backed LevFin Insights, which was started by market veterans to report on the loan and high yield market. Second of two parts – View part one
The Lead Left: Your colleague Kelly Thompson recently wrote about “cov-wide.” Tell us more about that.
Steven Miller: Kelly, who writes the middle market beat for LFI and is a great reporter in that space, talked about the growing use of what used to be called covenant-lame in the middle market.
Her reporting found that more and more loans in this segment are structured with ceilings set so wide of actual numbers that the borrower is more likely to default on payment before ever tripping the test. In a cov-wide deal, the test might run as wide as 30-40% of closing leverage, market sources say. Picture a 5x deal set against an 8x or 9x covenant. For all practical purposes, then, these are cov-lite deals.