The hard sell
Covenant-lite loans make up an increasing part of collateralised loan obligation (CLO) portfolios. But the reduction in covenant protection has sparked concerns that lower recovery rates for cov-lite loans could cause increased loss exposure for CLO investors in a credit downturn. Radi Khasawneh investigates
The boom in covenant-lite (cov-lite) loans is starting to have a noticeable effect on collateralised loan obligation (CLO) portfolios. With cov-lite loan volumes exploding in the first quarter of this year, CLO managers are increasingly turning to these assets to use as collateral in their portfolios.
Cov-lite loan volumes reached $48 billion in the first quarter of 2007 - double the figure for the whole of 2006, according to Standard & Poor's Leveraged Commentary and Data. While only a small
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