Riskier companies are increasingly getting credit agreements that allow them to raise the amount of future cost savings to appear more creditworthy, boosting potential losses for investors.
The tweaks make it easier for borrowers to stay in compliance with their loan terms and add more debt, according to Charles Tricomi, a senior analyst at covenant research firm Xtract Research.
“There is too much money chasing too few loans,” Tricomi said. “Lenders are really at a disadvantage and have to agree to these terms significantly against their own interest, terms that they should be fighting off.”
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