That was quick.
Despite the very recent financial crisis, many of the most risky forms of bank lending to less-than-credit-worthy companies is already making a comeback.
FT: In a cov light – short for covenant light – loan, borrowers are granted credit with few, if any, conditions.
Pik toggle transactions make it possible for debt to be repaid with more debt – payment-in-kind notes. In a dividend recap, companies take on additional debt to pay dividends to their owners.
The reappearance of such instruments in recent weeks has stirred concerns that government efforts to stimulate lending are having unintended consequences, encouraging lenders to take positions based on “best-of-all-possible-worlds” assumptions.
Yet who can blame them. Banks are being encouraged by governments to lend. So they’re getting creative again to do so.
The return of cov lites was highlighted last month when Pinnacle Foods, owned by Blackstone, took on $900m of such debt to help finance its $1.3bn purchase of Birds Eye Foods.
Days before, Wall Street witnessed the first Pik toggle deal since the crisis – a $250m financing for JohnsonDiversey, a cleaning services company.