covenant-lite

covenant-lite
USA
A type of loan facility which has less financial covenant restrictions than is ordinarily required. Covenant-lite loan facilities take various forms but may be broadly characterized as senior syndicated leveraged loan facilities with the following features:
• A negative covenant package similar to (or based on) those used in high-yield bonds which are usually given on an "incurrence" rather than "maintenance" basis. The effect is to loosen the lender's control since incurrence tests must be met only at the time of a specific event (such as the incurrence of debt) rather than the traditional maintenance test which must be met at all times.
• No financial covenants; or financial covenants (usually the leverage ratio) that apply to the revolving loans only (and not the term loans).
Covenant-lite loans have lost favor with lenders since the credit crisis of July 2007 and are no longer generally available

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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