“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…
Contact: Steven Miller smiller@covenantreview.com
The onset of renewed market volatility last week reminded credit participants that exogenous events do impact prices and new issuance, though to differing degrees. Broadly syndicated loan and high-yield bond markets both saw price declines in secondary trading. But new junk issuance slowed to a crawl after the Brexit vote, while loan activity continued uninterrupted. This…
By the time you read this, the UK will be voting on its long-awaited referendum on whether or not to leave the EU. Polls show the contest too close to call. Whether “Remain” or “Leave” prevails, the Brexit outcome will undoubtedly impact international politics and the global economy for years to come. Despite turmoil in the…