Recovery alert: S&P says covenant relief activity drops

December 3, 2010, 9:40 PM UTC

Leveraged companies are having a much easier time meeting loan obligations than at any time over the past few years, according to new data from Standard & Poor’s.

It shows that only four companies last month received leveraged loan covenant relief, which typically involves easing of credit conditions on existing debt. The agreements were for $883 million in leveraged loans, which is the lowest dollar total since February 2008.

S&P attributes the drop to overall economic recovery, which has brought with it greater cash-flow at leveraged companies. It also says that context has played a role, due to “extreme activity” in late 2008 and early 2009.

Not all, however, is positive on the leveraged issuer front. First, S&P expects covenant relief activity to tick higher at the beginning of 2011, due to checks coming due on lender agreements reached in 2008 and 2009.

Also, covenant relief declines have not been matched by a reduction in “amend-to-extend” deals, in which lenders agree to delay loan maturities. Seven issuers agreed to extend $3.2 billion worth of loans last month, which brings the YTD total to $66 billion (compared to $48 billion during the first 11 months of 2009).