The rise of covenant-lite lending and implications for the UK’s corporate insolvency law toolbox

Sarah Paterson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This article is, so far as the author is aware, the first to examine in detail the implications of the explosion of covenant-lite loans for English corporate insolvency law. Covenant-lite loans lack certain early warning mechanisms that have traditionally been found in loans to heavily indebted borrowers. Concerns about the implications of covenant-lite loans have been raised in the broadcast and print media, and by economists and central banks in England and the United States. This is an issue that matters to us all. This article argues that covenant-lite lending means that lenders and borrowers may start restructuring negotiations when the scale of the distress is acute, implicating operational and financial liabilities. It provides a detailed analysis of the additional corporate insolvency law tools which may be needed as a result, and explains why this analysis is relevant for the detailed working out of current corporate insolvency law reform proposals.

Keywords: covenant-lite loans; private equity; corporate insolvency; corporate bankruptcy; corporate restructuring; corporate reorganisation (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-09-01
New Economics Papers: this item is included in nep-isf
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Published in Oxford Journal of Legal Studies, 1, September, 2019, 39(3), pp. 654 - 680. ISSN: 0143-6503

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:100746

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