Corporate Lenders Push for Protection Against Covenant Exploits

Lenders to risky, debt-laden companies are increasingly demanding protection from financing maneuvers used to undercut creditors when times get tough.

A recent crop of leveraged loans demonstrates investors’ heightened concern with protecting their assets. In some recent deals money managers have successfully closed loopholes borrowers might have tried to exploit if higher-for-longer interest rates overwhelmed their finances.

The move is a response to years of controversial financial maneuvers — once called creditor-on-creditor violence, now more politely called liability management transactions — that leave some lenders out in the cold. And the resistance is spilling over to the world of private ...