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ARCHIVE | Criteria | Structured Finance | CDOs: The Covenant-Lite Juggernaut Is Raising CLO Risks?And Standard & Poor's Is Responding Jun 07
Standard & Poors, June 2007
Abstract
Covenant-lite loans, fueled by the leveraged buyout (LBO) wave and virtually unlimited liquidity, continue to proliferate in 2007. Though the definition of 'cov-lite' varies, it generally applies to loans that have only incurrence tests and lack maintenance tests or financial triggers. Loan structures that lack maintenance tests can potentially hinder a lender's ability to reprice credit risk and reduce a lender's ability to restructure a problematic loan and mitigate potential loss. Standard & Poor's Ratings Services is changing our collateralized loan obligation (CLO) criteria to reflect the potential expectation of increased loss exposure on cov-lite loans. Our response reflects the erosion of covenant protection in syndicated bank loans, our expectation that the absence of covenant protection may result in diminished...
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
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