Covenant-Lite Loan
The covenant-lite loan is a type of loan that has lesser restrictions on the borrower and the same to the lender. This is unlike other traditional loans that have a protective covenant for the lender and as well as criteria to measure the debt-service capability of the borrower. From the name, you can derive that borrower’s collateral is more flexible compared to other traditional loans. This extends to the level of income, and the loan’s payment terms.
Covenant-Lite Loan Definition – Investopedia
https://www.investopedia.com › … › Loan Basics
A covenant–lite loan is a type of financing with fewer restrictions on the borrower and fewer protections for the lender, often used in leveraged buyouts.
Covenant-Lite Loans: Overview – Paul, Weiss
https://www.paulweiss.com › media › goodison_w…
This Note explains the typical features of covenant–lite loans and examines the benefits and drawbacks of covenant–lite loans for borrowers and lenders.
Covenant Lite: Everything You Need to Know – UpCounsel
https://www.upcounsel.com › covenant-lite
A covenant lite loan is special financing that is given along with relatively limited restrictions in regards to the borrower’s debt-service capabilities.
Implications of the Growth in Covenant-Lite Loans – Bain …
https://www.baincapitalcredit.com › sites › files
Below we will discuss the evolution of covenants in the loan market, the emergence of cov–lite loans, our view on default and recovery impact, and how we are.
WHAT YOU SHOULD KNOW
- A covenant-lite loan differs from traditional loans because they have less protection for the lender and with flexible loan terms. Covenant.
- Covenant loans are favorable to the borrowers by creating flexible terms on the level of income, collateral, and the payment terms of the loan.
- Do you know that Covenant loans are as well known as “Cov-lite”
- Cov-lite is riskier for the lender although it has the potency of fetching larger profit.
- Do you know that the idea of cov-lite loans. Was traced back from leveraged buyouts launched by a private equity firm?
Covenant-Lite loans provide borrowers a higher level. Of financing compared to accessible loans from a traditional loan as well as. Friendly terms to the borrowers. As it benefits borrowers, it as well as. Disadvantages lenders and put them at more risk, unlike the traditional lenders. Cov-lite also allows borrowers to engage in some activities. Which are not obtainable in a traditional loan.
However, covenant loan is offered to investment firms. High-net-worth individuals and corporations
The origin of cov-lite is traced down to the emergence of. Private equity groups that used highly leveraged buyouts to acquire other companies (under the influence of leveraged loans). It was out of the levels of debt. Required for leveraged loans and as well the large potential for profit. The buyout groups drafted and suggested terms to their banks and other lenders.
Advantages and disadvantages of Covenant-Lite Loan
- The effect of flexible loan restriction terms and. Favorable terms in regards to when and how to repay. For a covenant-Lite loan is great leverage for borrowers to engage in other deal-making.
- Companies that took advantage of. This have grown as they can broadly expand their deal while still on debt load.
The downside
- Even though borrowers are given flexible and favorable terms, the balance sheet still claims that their ability to repay was at stake.
