Jefferies

Actionable Ideas for Companies and Sponsors

Middle Market Covenant-Lite Term Loans

The leveraged loan market is broadly bifurcated into middle market loans for companies with $50 million of EBITDA or less, and institutional market loans for companies with greater than $50 million of EBITDA. Historically, terms were far more stringent for middle market loans, particularly with respect to requiring financial maintenance covenants. Recently we have seen a large uptick of instances of middle market loans being arranged without a maintenance covenant, with covenant-lite term loans executed in June representing 60% of the middle market issuance. We expect this trend to continue, as it is being driven by both investors who are now accustomed to covenant-lite structures moving down into the mid-market and by financial sponsors and corporates taking advantage of the loan supply/demand imbalance favoring issuers.