In our recent trends reports we have discussed at length the substantial erosion of covenants and lender protections in European leveraged loans over the course of the last couple of years. We continue to see sponsors and borrowers pushing through ever looser documentary terms, which lenders are often compelled to accept for lack of supply or fear of being excluded from subsequent deals.
But when is enough, enough?
We are often asked by buy-side clients where we have seen – and where there might be scope for – successful pushback against aggressively borrower-friendly terms. While this will often depend, at least to some extent, on the strength or weakness of a particular credit, we have been seeing some encouraging results of concerted pushback by lenders against the more aggressive and offmarket terms more generally.
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