Covenant-Lite
Corporate Credit Analysis glossary · Credit Agreements & Covenants
Definition
A credit agreement with no maintenance financial covenants, only incurrence covenants. Cov-lite structures dominated the US leveraged-loan market in the 2010s-2020s; the absence of maintenance tests reduces lender control between defaults.
Covenant-Lite in plain English
Covenant-lite ("cov-lite") describes a loan agreement that leaves out the ongoing rules that normally let lenders check in on a borrower's health. Normal loans have "maintenance covenants" — promises the borrower must keep passing every quarter, like keeping debt below a certain level — and if one is broken, lenders can step in early. Cov-lite deals only have "incurrence covenants," which just limit specific new actions (like taking on more debt) rather than testing overall health regularly. It's like a landlord who only checks the apartment when you move out instead of doing routine inspections — so problems can grow unnoticed, and lenders lose the power to act until things have gone badly wrong.
Learn these first
Related Corporate Credit Analysis terms
Corporate Credit Analysis practice questions · Corporate Credit Analysis flashcards · Corporate Credit Analysis study guide