Private Lenders Ratchet Up Risk as They Fight for Business
- Cov-lite loans are becoming more common in $1 trillion market
- Even loans with covenants give lenders limited protection
This article is for subscribers only.
Private credit funds, flush with cash and competing more intensely to win lending business, are increasingly giving up key safeguards that protect them in tougher times.
About 20% of private loans in the third quarter had lending agreements known as “covenant-lite,” giving creditors fewer ways to trigger bankruptcies or other restructurings for companies that fall into distress, according to investment bank Lincoln International. That’s up from 10% a year ago. And loans offering lenders better protections with two covenants fell to 30% from 50% over the same period.