hard · Private Credit documentation-covenants-terms
What is the primary danger of a 'Covenant-Lite' loan for a private debt lender?
- The requirement to pay meaningfully higher management fees to the fund's GP.
- The automatic conversion of the outstanding debt into equity once leverage is breached.
- The inability to intervene and restructure the debt before a payment default occurs.
- A reduction in the floating-rate margin charged to the borrower over the SOFR benchmark rate.
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