Covenant lite facilities
Produced in partnership with Neil Grant
Covenant lite facilities

The following Banking & Finance practice note produced in partnership with Neil Grant provides comprehensive and up to date legal information covering:

  • Covenant lite facilities
  • Overview
  • Coronavirus (COVID-19) and financial covenants
  • Terminology
  • Traditional 'covenanted' facility
  • Covenant 'loose'
  • Covenant 'lite'
  • Springing financial covenants
  • Beyond financial covenants
  • Yield protection
  • More...

Covenant lite facilities

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for lending lawyers? [Archived].

Overview

Covenant 'loose' and covenant 'lite' facilities provoke much debate in the leveraged finance market since they are perceived to indicate that debt markets are overheating and lending standards are declining. This Practice Note seeks to explain some of the key characteristics of covenant loose and covenant lite financings and assesses some of the risks investors in these facilities may be exposed to.

This Practice Note assumes a certain level of knowledge of leveraged finance terminology and documentation. For more introductory information on leveraged finance financial covenants, see Practice Note: Leveraged finance—financial covenants. For a introductory guide to acquisition finance, see Practice Note: Acquisition finance—introductory guide. The Glossary of acquisition finance terms and jargon may also be helpful.

Coronavirus (COVID-19) and financial covenants

For information on the impact of coronavirus (COVID-19) on leveraged finance financial covenants, see News Analysis: Assessing the

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