Credit quality of cov-lite loan issuers declines

A new report shows a deterioration in the credit ratings of companies issuing loans with weaker covenants

The European debt markets are using weaker loan documentation, with so-called “covenant-lite” loans becoming more prevalent among smaller and lower credit quality issuers since the credit crisis.

A report on European leveraged loans published yesterday by Fitch Ratings shows a significant shake-up in the profile of companies using cov-lite loans, which come with much less stringent terms and conditions. Cov-lite loans, widespread in the buyout boom, are often seen as a sign of more liquid debt markets.

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