“Out With the Old Covenants, In With the Loose”: What Is the Fallout Related to Covenant-Lite Loans of 2005-2007?

...Since the onset of the credit crunch at the end of 2007 and accompanying significant decrease in liquidity however, the trend has reversed and banks have begun imposing more traditional (stiffer) covenants8. Standard & Poor’s “The Leveraging of America: Covenant-Lite Loan Structures Diminish Recovery Prospects” lists U.S. Foodservice and Thomson Learning as examples of transactions in even 2007 that had trouble getting through syndication without more conventional covenant packages. This said, even though the trend may have already reversed, it is worth wondering whether there were negative repercussions felt in relation to those covenant-lite loans- if any.