![]() ![]() ![]() It is important to note, again, that the data set for cov-lite is thin indeed. The discounted recovery time-values the nominal recovery back to the date of default using the pre-petition default rate, normalizing recoveries over long periods of analysis, and creating parity among the recovery outcomes from various events. Because restructurings can last years (and years), eliminating the noise of time is important to maintain comparability. That figure drops to 56% for cov-lite loans originated in 2010 and after, according to LossStats.įor purposes of this analysis LCD has used discounted, as opposed to nominal, recoveries. Specifically, the average discounted recovery rate on cov-lite loans undertaken before 2010 is 78%. While the data set for recent-vintage cov-lite loans that have entered and emerged from the default/distressed exchange/bankruptcy processes is necessarily thin – leveraged loan default rates have been stubbornly low for much of the current credit cycle – it offers insight into how today’s cov-lite loan binge might impact recoveries. leveraged loan asset class, looking to take advantage of continued rate hikes by the Fed – leveraged loans are floating rate – and, recently, a steady rise in LIBOR.įor a glimpse into how the current cov-lite market dominance might hinder recoveries on leveraged loans in cases of default, LCD looked at average recoveries on cov-lite credits undertaken prior to 2010 – before the financial crisis – and those undertaken after 2010 (so-called cov-lite 2.0), using data from LossStats. ![]() They have soared in popularity over the past few years as institutional and retail investors have poured tens of billions into the U.S. leveraged loans are cov-lite, compared to just 29% in 2007, at the peak of last credit cycle (and just before the financial crisis).Ĭov-lite loans place fewer restrictions on a borrower than do traditionally structured credits. Right now roughly 78% of the more than $1 trillion in outstanding U.S. Specifically, when the current, long-running credit cycle finally turns, how much less will investors recover on these loosely structured deals, if they end up in default, than on defaulted loans offering traditional safeguards? revolving credit facility, acquisition facility, Term loan A) and structures (e.g.Covenant-lite has been the talk of the leveraged loan market for a while now. Leveraged Loans (both syndicated and club) across products (e.g.In the Corporate financing space, we support Corporate clients looking to access the high yield bond and/or institutional loan markets, and lead on all material Corporate M&A financings via best efforts, bridged, backstopped and underwritten deals across GBP, EUR and USD. We also offer both senior and super senior acquisition finance facilities (on a club basis) and have an innovative product franchise in the UK mid-market with senior co-lending arrangements and synthetic unitranche alliances with a wide range of institutional debt fund investors. In the Sponsor space, we have a leading capital market franchise across leveraged loans and high yield bonds, with underwrite and best efforts capabilities across GBP, EUR and USD. We have built a diversified portfolio of M&A and non-investment grade lending over a number of years and as a result we have a deep understanding of a variety of sectors, as well as the M&A and buy-out markets. We are a London-based centre of excellence with 35+ market facing professionals and a broad UK and pan-European mandate. We have extensive experience with 20+ years of unbroken capital markets activity, underpinned by strong client relationships with Sponsors and Corporates. ![]()
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