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Cov-lite (or "covenant light") is financia … 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 of underlying assets deteriorates, around 2006 the increasing strength of private equity firms and the decreasing opportunities for traditional corporate loans made by banks fueled something of a "race to the bottom", with syndicates of banks competing with each other to offer ever less invasive terms to borrowers in relation to leveraged buy-outs. In the wake of the Financial crisis of 2007–08 growth in the use of cov-lite loans stalled, but more recently they have increased in popularity again. Cov-lite lending is seen as riskier because it removes the early warning signs lenders would otherwise receive through traditional covenants. Against this, it has been countered that cov-lite loans simply reflect changes in bargaining power between borrowers and lenders, following from the increased sophistication in the loans market where risk is quickly dispersed through syndication or credit derivatives.through syndication or credit derivatives.
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Cov-lite (or "covenant light") is financia … 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 of underlying assets deteriorates, around 2006 the increasing strength of private equity firms and the decreasing opportunities for traditional corporate loans made by banks fueled something of a "race to the bottom", with syndicates of banks competing with each other to offer ever less invasive terms to borrowers in relation to leveraged buy-outs.rrowers in relation to leveraged buy-outs.
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