Covenants

Western and Eastern private debt deals have little in common when it comes to how borrowers and lenders are treated.

With covid-19 causing complex disruption to the world of commerce, private equity sponsors, portfolio companies and lenders can work together to deal with financial covenant breaches encountered as a result of operating in such unprecedented times.

Prior to the pandemic, it was commonly believed that a crisis would allow a reset of deal documentation in which the balance of power would shift from borrower to lender. So far, there’s little sign of it.

Performance issues are emerging within private debt portfolios, but plenty of lenders are getting fair warning and not panicking yet.

Borrowers have held the balance of power for some time when it comes to deal negotiations. There are signs that their grip is being loosened, if only a little.

A survey has found almost unanimous agreement among investors in the European leveraged finance market that covenant capacity cannot be accurately calculated.

While the eyes of many are on loan documentation, Nicole Downer of MV Credit says the focus should be elsewhere, including fostering solid relationships with sponsors

While the eyes of many are on loan documentation, Nicole Downer of MV Credit says the focus should be elsewhere, including fostering solid relationships with sponsors.

It was widely predicted that the market downturn would profoundly alter behaviour in leveraged finance, but then along came EBITDAC as a reminder of the past.

As an example of the practice surfaces, an industry body is warning other companies not to use the covid-19 outbreak as an excuse to try and raise additional finance through flexible documentation.