Cov-Lite TLB
Private Credit glossary · Documentation, Covenants & Terms
Definition
Covenant-lite Term Loan B — institutional-format leveraged loan with no maintenance financial covenants, only incurrence-based covenants tested when the borrower takes a specified action (incurring new debt, paying a dividend, making an acquisition). Standard in BSL since c. 2014, historically rare in middle-market direct loans but increasingly common in upper-middle deals as a competitive concession. Often paired with a springing leverage covenant that activates only when revolver utilization exceeds sim 35%.
Cov-Lite TLB in plain English
A loan usually comes with 'covenants' — promises the borrower must keep, and some are ongoing health check-ups (every quarter, prove your debt isn't too high). A 'cov-lite' loan strips out those regular check-ups: the borrower only gets tested when they try to DO something specific, like borrow more or pay themselves a dividend. This term ('Term Loan B') is the big, standardized version of such a loan sold to institutional investors, and cov-lite has been the norm in that market since around 2014; it's now creeping into larger private/direct loans as lenders compete for deals by offering easier terms. Sometimes there's a 'springing' safeguard that only wakes up if the borrower has tapped more than about a third of their backup credit line — a sign they might be getting stretched.
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Practice Cov-Lite TLB
Which structure is most likely to result in a lower 'Loss Given Default' (LGD)?
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