Maria McGuire, principal in the firm's Commercial Finance Group, is quoted in "Amid Demand for Yield, Covenant Erosion Takes Hold in Middle Market," published in the Nov. 29, 2017, edition of S&P Global Market Intelligence. The article discusses the increasing popularity of covenant-lite loans in today's leveraged loan market.
Covenant-lite issuance has taken the middle market by storm this year, technically making up 36 percent of new issuance. Middle market issuers are becoming increasingly aggressive regarding leverage headroom, not debt, and add-backs, prompting some in the space to dub some of today's deals as "covenant-loose." Sometimes these financial covenants are so loose, they are not even tested.
"There are many deals that have only one financial covenant, which is only tested if the line is drawn to a certain extent," McGuire says, "this is definitely an erosion to what we saw a few years ago, when there was usually a full set of financial covenants that are being tested all the time."