Much attention has been paid to regulators’ concerns over banks pushing leverage and other risk elements. What goes missing in these discussions is what lenders, including non-banks, think about the credit environment we’re currently in. Specifically, regardless of what the Fed, OCC, and FDIC (the Big Three) are doing with their Leveraged Lending Guidance, the real question is, what are debt originators and investors thinking about credit standards? Are they being eroded, and if so, what can be done about it?

For the next several weeks, this column will devote itself to these questions. With the help of some of our friends in senior credit positions around the industry, we’ll take a look at financial covenants, debt baskets, amortization, cash flow sweeps, projection models, risk ratings, valuations, and other components of credit agreements being scrutinized by market players today.

We’ll also take a look at some basic, tried-and-true credit parameters that may have escaped notice of some parties as conditions in the leveraged lending market have heated up in the five years since the end of the Great Recession.

Let’s begin with a look at financial covenants. In a conversation we had recently with the credit chief of a leading middle market shop, we asked what he thought of the direction financial tests were headed, given where leverage has migrated.