Here The Go, Again! Cov-Lite Leveraged Loan Issuance Is Soaring

Alas, investors have the hots for this debt, and companies are taking advantage of it by weakening covenants, giving investors fewer protections and the company more leeway – such as paying interest with more debt rather than cash if it runs out of cash (payment-in-kind or PIK); normally, not being able to pay interest would constitute a default, but not with these “covenant lite” or “cov-lite” loans. The boom in cov-lite has started years ago and has surged to massive record proportions. When these loans default, investors are exposed to much greater losses.

As of the end of May, a record 77.4% of the $1 trillion in leveraged loans currently outstanding are cov-lite, the 13th month in a row of records, up from 55% in June 2014:


Leveraged-Loan Risks Are Piling Up