Highlights

  • Covenant-lite loans are not covenant free. In our experience, covenant-lite loans have more covenants than high yield bonds.
  • In our view, good credit quality is far more important for investors than a single covenant eliminated from among the many that still go into a loan credit agreement.
  • Covenant-lite is a cyclical reality and potentially an annoyance for lenders, but it is only a small part of the much bigger credit picture and therefore should not have a major effect on risk and return in the category.