As predicted a year ago, the adoption of US-style covenant-lite terms in European leveraged deals continues apace. This is hardly surprising given that the existence of ultra-low interest rates are sparking intense competition for yield amongst financial investors. Sponsors and advisers are increasingly applying approaches from the US leveraged loan and global high yield bond markets to European leveraged loans. Sponsor friendly terms are very much in fashion.
Covenant-lite loan financings are far from uniform in Europe at this stage, yet they continue to evolve gradually. In 2013, we saw some fully US-style covenant financings for the acquisition of European assets documented under New York law and either partly or wholly syndicated in Europe. Next came Loan Market Association (LMA) based English law credit agreements that were stripped of most of the financial covenants.