Borrowing private credit is getting easier…

Private credit is starting to look a lot more like Wall Street. Direct lenders are increasingly agreeing to “covenant-lite” terms — loans with fewer financial restrictions and test; once the preserve of leveraged loans — as they compete for large, high-quality borrowers, Bloomberg reports. Safeguards that helped private credit sell itself as safer than banks are quietly being dropped.

This marks a break from the model: Traditional private credit relied on maintenance covenants — regularly tested leverage limits that allowed lenders to step in early when debt rose. This approach has also been safer for their balance sheets — private borrowers are estimated to have a default rate of around 2-3%, lower than for leveraged loans made by banks.

Now, large sponsors with leverage are pushing for looser documentation, and lenders are conceding to secure mandates.

By the numbers: S&P data shows middle-market collateralized loan obligations now allow up to 25% covenant-lite exposure, up from about 16% in 2021 — weakening protections beyond marquee transactions.

Lawyers now expect the trend, which is now appearing regularly in upper-market private credit transactions, to accelerate this year, according to the business news information service.

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Not everyone is playing along: Some lenders say they still walk when terms slip too far. “We are not afraid to walk away from [agreements] where we are not comfortable with the documentation,” wrote ICG Managing Director Peter Lockhead. But for now, the direction of travel is clear: to secure agreements, private credit is giving up what once made it different.

MARKETS THIS MORNING

Asian markets were mostly in the green this morning, led by the Taiwan Weighted Index, which climbed 1.1% on news of a US-Taiwan trade agreement that pushed shares of semiconductor producer TSMC higher on the back of tariff breaks. Japan’s Nikkei and the Topix were the outliers, with both trading in the red. Wall Street futures, meanwhile, are little changed, after the three major US indices rallied yesterday.

The values in the table above are listed according to the market position as of 3:30pm IST / 2pm GST.