A Closer Look at Private Credit Covenant Relief

This commentary summarizes the group of our rated private credit issuers, which has sought lender concessions and additional liquidity support. We also identify the severity of these situations in the context of current credit metrics. Currently, issuers under covenant relief represent 9.8% of our actively rated issuers.

Key Highlights:

-- We observe a significant overlap between the group of rated issuers showing the weakest financial ratios and issuers operating under covenant relief.

-- Capital injections featured in 13% of cases, while 3% of cases involved support in the form of limited sponsor guarantees.

-- A comprehensive review of covenant packages and the effectiveness of the overall structure of the credit agreement in protecting creditor interests is integral to our credit ratings process.

“Our analysis indicates that the subgroup of issuers seeking covenant relief that are also experiencing material degradation in operating performance and core credit metrics are well-aligned with the group of highest-risk borrowers holding credit ratings of CCC (high) or lower,” says Michael Dimler, SVP, Private Credit Ratings. “We continue to expect these issuers to face high risk of credit events if external operating pressure remains elevated.”