Covenant-lite loans have surged in the last couple of years. In 2018, cov-lite loan volume in the US reached $911 billion, an approximate 26% increase over 2017, and accounting for 85% of leveraged loans in the U.S., the highest percentage on record.
Through August 2019, cov-lite loan volume in the US soared to approximately $940 billion, about 3% more than the total for 2018. As of August 31, 2019, close to 80% of all outstanding par leveraged loans were covenant lite.
In terms of market provisions, certain borrower-friendly provisions became even more borrower-favorable in 2018. Despite some pull- back in the fourth quarter of last year, the prevalence of this borrower-friendly environment is continuing into 2019.
Our Finance partner, Eric Goodison, and practice management counsel, Margot Wagner, review below some of the most common cov-lite provisions and pros and cons for lenders and borrowers. In our view, the current market remains favorable to PE sponsors borrowing under cov-lite terms.
