Glossary
Credit and risk
What is cov-lite?
A loan with no maintenance covenant tests.
Standard in competitive markets. You win the deal and give up the tripwire, so problems surface late, when the recovery you can negotiate is materially worse.
A worked example
A cov-lite term loan has no maintenance test, so a borrower drifting from 5x to 8x leverage isn't in breach of anything. Lenders only get a say when it misses an interest payment or comes back to refinance.
Where it catches you in the game
- Cov-lite books raise acceptance odds and cut recoveries; the debrief flags heavy exposure.
It comes up most on the private credit desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what cov-lite does to your returns.