Cov-lite

Cov-lite debt is borrowing, usually a syndicated bank loan, that is raised without offering the covenants that usually give lenders some protection by restraining risk taking by the borrower.

A good deal of cov-lite financing goes to fairly high risk borrowers, such as private equity firms carrying out leveraged buy-outs. This makes the lack of covenants even riskier.

Although some aspects of the risks are ameliorated by the syndicated nature of most of these loans, which spreads the risk more widely, it still means that these loans are taking place under terms that do nothing to reduce or control the agency conflict.

The advantages of cov-lite debt for borrowers are obvious. For lenders they offer simplicity, as well as extra business.

It is usual to use the spelling "lite", presumably to demonstrate that the City and Wall Street can be just as illiterate as anyone else when they want to.