April saw another record for covenant-lite issuance in the U.S. leveraged loan market.
By month-end, a full 77% of first-lien institutional loans outstanding were cov-lite, up slightly from the previous month, according to LCD.
The cov-lite market share has grown steadily, from roughly 60% in 2015, as retail investors and CLOs flooded the market with cash, looking to take advantage of the floating rate asset class amid rate hikes by the Fed.
Cov-lite loans have been in the spotlight over the past few years as their share of the market has grown. Detractors say these deals – which are structured akin to high yield bonds, offering less protection to lenders – could significantly impact recoveries when the current, long-running, issuer-friendly credit cycle turns.
In 2007, before the financial crises and at the end of the last credit cycle, cov-lite loans accounted for roughly 20% of U.S. leveraged loans outstanding. – Staff reports
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