The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Covenant-lite loans: Through a glass darkly

Risky and unpredictable, covenant-lite loans are here to stay.

(This article appears courtesy of International Financial Law Review, sign up for a free trial on their site

Sam Jones

IFLR staff writer

"Markets can remain irrational longer than you can remain solvent," said economist John Maynard Keynes. The current debt market, some might have you believe, is both recklessly irrational and remarkably solvent. In fact, it's the solvency that's making things irrational.

"Welcome to the fin-de-siècle mood that is gripping high finance," editorialized the Financial Times in late May. "Buddy, just hand over that dime," said the Economist.

The financial press has pulled no punches in its coverage of the private-equity led M&A boom. And nothing seems to epitomize the markets' current decadence more than covenant-lite loans, which in the past few months, have broken into Europe.

Late May saw the fêted UK fund manager Anthony Bolton stridently criticize cov-lite loans in his departure speech from investment fund Fidelity. "It is only a question of when rather than if things go wrong," said Bolton. "I can't tell you when it's coming. I can tell you the pressures are there."

Covenant-lite loans are indeed risky creatures. Banks seem to be showing a remarkably candid recklessness in agreeing to ever more flexible terms, which is making market watchers uncomfortable.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree