Much to the chagrin of debt investors, asset transfers are growing in popularity for distressed borrowers of covenant-lite debt. Senior lenders previously had protections in place that would allow them to assume the core assets of an entity, but incredible demand for yield has caused these protections to deteriorate.
“When a lender is deciding to lend money to a [debt] issuer, they generally are thinking they’re getting credit support from all of the assets of the issuer,” said Anthony Canale, global head of research at Covenant Review, a research firm. “They don’t understand that when you read the fine print, the issuer actually has the ability to move assets.”