...April 12, 2018 The combination of historically low interest and default rates and growing institutional investor demand has fueled an increase in covenant-lite loans. According to S&P Global Ratings' Leveraged Commentary & Data (LCD), covenant-lite loans made up 75% of new institutional loans in 2017. Perhaps more notable, through early February 2018, covenant-lite deals accounted for record high 85% of 'B' rated institutional issuance. For years, there was much discussion about the covenant-lite phenomenon, and in particular, what it means for ultimate recovery in a default. The data on recovery rates for covenant-lite loans in the past downturn did not suggest incremental recovery risk, although the data was viewed as inconclusive given limited number of data points and a general perception that companies with covenant-lite structures at that time were generally better credits....
