Leveraged-Loan Investors Let Companies Take the Wheel
Cov-lite structures can leave creditors without a seat at the table at the most crucial time.
Investors are just along for the ride.
Photographer: Fox Photos/Hulton Archive/Getty Images
Last week, Moody’s Investors Service published its quarterly report on covenant quality in leveraged loans. As usual, it painted a grim picture, with deals in the final three months of 2019 offering the worst investor protections ever seen.
Its release has traditionally been yet another opportunity for market observers (myself included) to shake their heads at overeager investors so desperate for yield that they’re willing to give up typical safeguards. “If and when the credit cycle turns and the losses mount, they’ll have no one to blame but themselves,” I wrote on Jan. 24. “There’s no going back now: The risky debt markets are full of cov-lite deals. Investors either have to acclimate to that reality or get out of high-yield and leveraged loans,” I noted on Feb. 18, a week before markets began an epic free fall.