Investor Sentiment on Covenant Flexibility

The current sentiment among investors regarding covenant flexibility has shifted as a result of the pandemic. Initially, there was a willingness to accept looser covenants when the market was favorable, contributing to rapid bond issuance with aggressive terms. However, as the economic landscape became uncertain due to the coronavirus, investors have begun to scrutinize these covenants more closely. Factors such as the ability of issuers to extract value through restricted payment baskets and incremental debt are now focal points during investment evaluations, leading to a cautious approach toward highly flexible covenant packages.