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Growth of Covenant-lite: Much Ado About Nothing?

November 2019 
By David Marshak and Jeffrey Heuer, CFA

Much has been made of the growth in covenant-lite bank loans over the past decade, but the implications for investors may be less onerous than suggested.

David Marshak
Portfolio Manager
Hartford Floating Rate Fund & Hartford Floating Rate High Income Fund, Wellington Management
Jeffrey Heuer, CFA
Portfolio Manager
Hartford Floating Rate Fund & Hartford Floating Rate High Income Fund, Wellington Management

 

In recent months, many investors have become increasingly worried about deteriorating credit standards for bank loans. Much of the concern has been driven by negative press coverage around the proliferation of so-called “covenant-lite loans”—essentially, loan agreements that offer fewer safeguards for the lender.



Important Risks: Investing involves risk, including the possible loss of principal. • Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. 

WP511  214732