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Yield-hungry investors let guard down

Corporate borrowers get away with issuing deals with less protection in face of the cash flood in Europe.

MARIO Draghi's trillion-euro stimulus plan is making investors so desperate for yield that they're giving up protections in Europe's market for risky corporate loans.

The unprecedented flood of cash from the European Central Bank (ECB) is allowing companies to borrow without many of the investor safeguards typically included in credit agreements, weakening the ability of investors to limit how much debt a company can have relative to its earnings. More than half of the 11.2 billion euros (S$16.8 billion) of leveraged loans arranged this year in Europe have limited covenants, according to data compiled by Bloomberg.

"Borrowers can get away with issuing covenant-light deals because the demand-supply...

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