Private Equity Leans on Weaker Credit Safeguards, Moody’s Says

Loans with strong financial safeguards have largely disappeared from credit markets as borrowers backed by private equity are driving a surge of riskier loans that return less money in a default, according to a Moody’s Ratings report.

Lenders recovered an average of 57% on first-lien so-called cov-lite loans between 2023 and mid-2025, compared to 66% on a “small and shrinking” number of loans that include financial maintenance covenants, according to the Tuesday report.

Almost three-quarters of rated borrowers with cov-lite loans are private equity-backed, Moody’s wrote. Moody’s defines cov-lite loans as those that don’t require quarterly financial tests or those ...