At the start of 2016, global sponsors and their advisers are the US leveraged loan and global bond markets to the European leveraged loan market. Healthy investor appetite over the last several years means attractive terms can be selected from the US loan market, which has been more sponsor-friendly for longer than the European market, owing primarily to the depth of its investor base. The continued adoption of US covenant-lite terms into European loans itself generates a source of European “cov-lite” precedents, thus in turn strengthening the precedential case for cov-lite, in the absence of a market correction. Loan markets are currently somewhat volatile, however, so further erosion of covenant terms may be unlikely for as long as this volatility continues. This convergence brings a number of new documentation issues to consider.

Originally published in Lending and Secured Finance - 2016