|
Crunch time for LBOs
Euromoney August 2007
The investor revolt in the
leveraged loan market during
June and July was long
overdue and much needed.
But have the excesses of the
past few years left the LBO
market teetering on the
precipice of a far more serious
credit squeeze? |
Why covenant-lite CLOs are the next accident waiting to happen
SOMETIMES THINGS JUST don’t seem quite right. "One good thing about the rapid growth of covenant-lite leveraged loans is that even if things go wrong these loans are not going to fall over for a long time," mused one CLO manager recently. "The borrower only has to pay their interest bill as there is nothing in the documentation for them to trigger."
Thus, with no pesky covenant triggers to breach, these assets can sit in the CLO without causing any disruption, even if the performance of the borrower seriously deteriorates....
