The Cov-lite Liquidity Advantage, Regulatory Pressures, and the Evolution of the Leveraged Loan Market / Robert Prilmeier, René M. Stulz.

Format:

Book

Author/Creator:

Prilmeier, Robert.

Contributor:

Stulz, René M.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w35617.

NBER working paper series no. w35617

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

Following the global financial crisis (GFC), regulators made it harder for banks to retain leveraged loan exposure. We conjecture their actions increased the share of leveraged loan issuances with no maintenance covenants (cov-lite loans) because such loans are easier to sell. We find that, post-GFC, the share of cov-lite loan issuance increased more for banks facing stricter regulation, failing to pass a stress test outright, or exhibiting greater vulnerability to the severely adverse stress test scenario. We show that, as expected from theory, cov-lite loans have a liquidity advantage that lowers their credit spread and is higher for private firms.

Notes:

August 2026.

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