Covenant-lite leveraged loan issuance in Europe has moved from a sideshow to the main event in just a few years, leaving the previously dominant covenanted sector as little more than a minor attraction.
As a percentage of institutional volume, cov-lite loans made up 72.8% of all European loan supply in the year to May 5, according to data compiled by LCD. This is well above the 55% share seen at the same point last year, and puts the European market above the U.S. on this measure, where 69.8% of all institutional supply is cov-lite so far. The year’s European cov-lite share is nearing the U.S. record set in 2016, when such deals accounted for 75.1% of all volume.
Covenant-lite loans are a particular kind of syndicated loan facility. At the most basic level, covenant-lite loans are loans that have bond-like financial incurrence covenants, rather than traditional – and more restrictive – maintenance covenants that are normally part and parcel of a loan agreement.
This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.