Opinion: The ‘Cov-Lite’ Fight in Leveraged Loans Is Lost

Feb. 18, 2020, 11:00 AM

If every leveraged-loan and high-yield bond deal is “cov-lite,” then none is.

This line of reasoning, loosely inspired by “The Incredibles,” might be how investors have to start thinking about the riskiest corners of the debt market. “Cov-lite,” a catch-all term for weak or nonexistent creditor protections known as covenants, has long been a popular buzzword among those concerned about excessive corporate leverage and how the leveraged-loan market has roughly doubled in size to $1.2 trillion just since 2012.

For money managers, the proliferation of cov-lite deals is an easy target — who could dispute that fewer safeguards is an overall negative development ...

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