covenant lite

Definition

Loans with few or no maintenance covenants that would normally protect lenders, essentially trusting borrowers to be responsible without supervision. It's the financial equivalent of lending your car to a teenager with no curfew.

Example Usage

The leveraged loan was covenant lite, meaning the lender gave up most protections in exchange for a slightly higher interest rate and a prayer.

Origin

Syndicated loan market terminology from 2000s, exploded in popularity post-2008 crisis

Fun Fact

Covenant-lite loans went from 25% of the market in 2011 to over 80% by 2018, because lenders apparently learned nothing from the financial crisis.

Source: Leveraged finance and credit markets terminology

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