Two private equity groups have taken a striking new step to protect themselves from future downturns in the credit cycle by raising loans that remove most lenders’ rights for the first time in Europe. The “covenant-lite” loan – or “cov-lite” – looks like a traditional syndicated loan but does not carry the legal clauses that allow investors to track the performance of a risky borrower or declare a default if financial measures are breached. Some bankers and lawyers regard the emergence of “cov-lite” structures as a sign of dangerous overheating in the European loan market. But others say the trend is a natural development given that liquidity levels remain very high in leveraged finance – irrespective of recent jitters in the US subprime mortgage sector. The cov-lite loans have appeared in a financing package that JPMorgan is raising for VNU World Directories, a European directories company owned by Cinven and Apax Partners, two large private equity groups.

This entry was posted by Gwen Robinson on Tuesday, March 20th, 2007 at 5:47 and is filed under Capital markets, Private equity. Tagged with apax, cinven. Edit this entry.