With three-quarters of all new loans considered "covenant-lite," lenders are now eyeing deals that include too many additional protections with suspicion, according to a report from Bloomberg.
The report notes that lenders are favoring lenient terms for borrowers, including first time issuers and smaller companies with unproven track records, that once would have warranted periodic performance goals.
“It’s basically the worst it’s ever been in terms of loan covenant protections,” said Derek Gluckman, senior covenant officer at credit-rating firm Moody’s Investors Service, in an interview with Bloomberg. According to the report, protections have gotten so lax in the $1 trillion market for U.S. leveraged loans that if an offering comes with decent covenants, lenders take it as a sign that something’s wrong with the deal.
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