Covenant Lite

Covenant Lite, or "cov-lite," refers to loan agreements that have fewer restrictions and protective covenants for lenders. Traditional loans include strict rules about how borrowers manage their business and repay debt, helping lenders reduce risk. Cov-lite loans loosen these rules, giving borrowers more flexibility and fewer obligations. While this can benefit borrowers by easing borrowing conditions, it may also pose greater risks for lenders, as they have less oversight and fewer safeguards if the borrower faces financial difficulties. Cov-lite loans have become more common in the market, especially among large, financially strong companies.