Managers fear ‘creep' of covenant-lite floating rate debt

Bond investors have expressed concerns over "aggressive" terms and conditions that are increasingly being imposed by issuers of floating rate loans.

Floating rate structures have seen a surge in popularity over the past year as investors seek to hedge interest rate risk, but some managers are now urging caution as issuers become more ambitious. The demand for such debt has allowed companies to offer ‘covenant-lite’ loans, which offer fewer protections for investors in terms of rules governing an issuer’s debt to earnings ratio and other metrics. “In the US, we are working through the middle stages of the credit cycle, and it is expected that the terms and conditions on loans will get more aggressive,” said Neuberger Berman Global ...