Covenant-lite credits now account for 81.6% of all outstanding leveraged loans in Europe, nearly double the rate seen only three years ago, according to the European Leveraged Loan Index (ELLI).
As of Jan. 31 there was €181.75 billion of European loans outstanding, according to the ELLI, meaning there is some €148 billion of cov-lite debt now held by investors.
Cov-lite loans are less restrictive to debt issuers and the private equity shops that sponsor them, while offering lenders and institutional investors less protection than do traditionally covenanted deals. Broadly speaking, cov-lite credits have bond-like incurrence covenants, which come into play only if the borrower takes a specific action, such as issuing more debt or making certain acquisitions. Traditionally structured loans have maintenance covenants, where borrowers must pass regular, agreed-to tests of financial performance, such as minimum levels of cash flow and maximum levels of leverage.
In the much-larger U.S. market there is roughly $922 billion of cov-lite loans outstanding, according to the S&P/LSTA Loan Index.
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