What is covenant lite debt?
What is covenant lite debt?
Covenant-lite loans or cov-lite, as they are more commonly known, are a type of term loan that has maximum flexibility and minimal constraints for the borrower, often resulting in only one or even no covenants.
Does cov-lite mean no covenants?
The absence of maintenance covenants in institutional loans is enough to make them cov-lite.
Why might covenant light loans make debt markets riskier?
Cov-lite (or “covenant light”) is financial jargon for loan agreements that do not contain the usual protective covenants for the benefit of the lending party. Cov-lite lending is seen as riskier because it removes the early warning signs lenders would otherwise receive through traditional covenants.
What is a PIK toggle?
A feature of the interest rate provisions in a loan whereby the borrower can choose to make interest payments either in cash or by payment-in-kind (PIK) and, during the term of the loan, can alternate back and forth between the two forms of interest payments within certain parameters.
What are springing covenants?
A covenant in a facility agreement that becomes effective if a certain event occurs. A springing covenant is a feature of some covenant-lite (or cov-lite) facilities, which do not contain the standard set of financial maintenance covenants found in more typical facility agreements.
What is a springing revolver?
It is also typical in these cov-lite loan transactions with included revolvers for the financial maintenance covenants to be “springing” in nature. This means they will only apply to the revolving credit facility if certain thresholds are met.
What is a first lien?
A First Lien Home Equity Loan (First Lien) is a mortgage product, meaning it’s a loan secured with real estate as collateral. However, First Liens are generally taken out when you’ve already purchased a home with a traditional mortgage.
What are affirmative covenants?
An affirmative covenant is a type of promise or contract that requires a party adhere to certain terms. For example, an affirmative bond covenant could provide that an issuer maintain adequate levels of insurance or deliver audited financial statements.
How does PIK Toggle work?
When to use cov lite or COV-loose TLB?
As cov-lite/cov-loose TLB enjoys its time in the spotlight in 2017, sponsors, borrowers, banks and advisors continue to focus on the key areas to consider when planning and marketing their deals, taking into account the flexibility sought by the business as well as investor needs.
What do you mean by cov lite loan agreement?
Cov-lite. Cov-lite (or ” covenant light “) is financial jargon for loan agreements that do not contain the usual protective covenants for the benefit of the lending party. Although traditionally banks have insisted on a wide range of covenants that allow them to intervene if the financial position of the borrower or the value…
What’s the difference between cov lite and covenant light?
Cov-lite (or ” covenant light “) is financial jargon for loan agreements that do not contain the usual protective covenants for the benefit of the lending party. Although traditionally banks have insisted on a wide range of covenants that allow them to intervene if the financial position of the borrower or the value…
When was the high water mark for cov lite loans?
The high-water mark of cov-lite loans came in the 2007 acquisition by Kohlberg Kravis Roberts, a US private equity firm, by way of a record $16bn cov-lite loan for its buy-out of First Data. The tendency towards cov-lite loans ended abruptly with the 2007 subprime mortgage financial crisis.