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Covenant protections for newissue private credit loans (PCs) flatlined in 2023 compared with 2022 even as the broadly syndicated market saw tighter terms amid less constructive conditions. On average, the Documentation Score of private credits stood at 2.89 on Covenant Review’s scale of 1 (most protective) to 5 in 2023, little changed from 2022’s average of 2.91. The average among Broadly Syndicated Loans (BSLs), meanwhile, strengthened to 3.61 in 2023 from 3.74 in 2022.

The share of PC loans that cleared with covenantlite structures fell to 26.2% in 2023, from 29.8% in 2022. For BSLs, the decline was less dramatic: to 92.4% from 92.6%. Across the broad size categories, the percentage of PC loans with incurrencetestonly structures was flat to lower as the chart on the right illustrates.


Drilling down, 2023’s PC loans included less generous basket capacity (left chart) as well as a falling proportion of highly negotiated terms such as MFN sunsets and assetsalessweep stepdowns (right chart), though a greater proportion included an inside maturity carveout.


PC vs BSL Credit Stats

Of course, more protective PC documents reflect, in part, the lack of liquidity relative to the BSLs. As well, PC loan borrowers in Covenant Review’s sample had higher pro forma leverage than BSL borrowers in 2023 at 5.3x firstlien/5.4x total versus 3.6x/4.2x, respectively.

Large PC vs BSL Loans

Jumbo PC loans of $1 billion or more are a relatively recent phenomenon. Starting in 2021, the first year for which there is a statistically significant sample, the trend in private credit follows the syndicated market as the charts ahead show. For example, the average Documentation Score of PCs improved to 3.06 in the 2023 from 3.33 in 2022. In the BSL market, likewise, the average trended to 3.70 from 3.88. The charts ahead show the trend in Scores as well as key covenant terms among $1 billion or more loans across the PC and BSL market.

We have pulled these insights from Covenant Review’s proprietary database of more than 1,400 private credit institutional loans going back to 2017. Our analysis is available to subscribers across CreditSights three content sets CreditSights Fundamental Research, Covenant Review and LevFin Insights.

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Steve Miller
Covenant Review


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