Comments on: Felix Salmon smackdown watch, cov-lite edition http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: essay writer http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-54953 Mon, 13 Oct 2014 11:47:40 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-54953 I’ll gear this review to 2 types of people: current Zune owners who are considering an upgrade, and people trying to decide between a Zune and an iPod. (There are other players worth considering out there, like the Sony Walkman X, but I hope this gives you enough info to make an informed decision of the Zune vs players other than the iPod line as well.)

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By: absinthe http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47187 Mon, 03 Jun 2013 20:19:37 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47187 I should also point out that underwriting standards are likely not the only confounding variable. Maybe if you could find them all there’s some statistical analysis that could prove your point; maybe there isn’t.

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By: absinthe http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47186 Mon, 03 Jun 2013 20:12:08 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47186 @FelixSalmon I have no idea. My point is just that the data’s not clean enough to say empirics are on your side. The most they’re good for is confirmation bias really. If you think there’s a clean analytical/causal explanation it should stand on its own.

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By: Bludde http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47185 Mon, 03 Jun 2013 18:05:26 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47185 Hello Felix… as a Brit you may be interested to know that I have published a book on Amazon called the “Patriarch” about the first Merchant Banking House in India, emerging from the aftermath following that one decisive battle on the afternoon of the 23rd of September, 1803 which changed the face of India forever… excerpts are posted on the website www.houseofshah.com and on twitter @pravbank

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By: CasualSophist http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47184 Mon, 03 Jun 2013 17:02:27 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47184 I hate to show up in a second post with essentially the same point, but as someone who actually has traded leveraged loans (and make no mistake: the cov-lite loans being discussed in this context are to “high yield” borrowers)… the empirical evidence says lower defaults and lower recoveries. You can misread 90% to compare it against unsecured bond recoveries, but it doesn’t change the fact that an earlier default — all else equal — will mean a higher recovery for the levered lender. There is no magic outperformance to be had simply by dropping covenants from a credit agreement.

Also: let’s be clear about something when we’re talking about “lenders”… what we mean in this world is CLOs and levered loan funds — they do not care about the returns to the equity and yes, they are interested in collecting a fee to give a waiver for a busted covenant but — except in the most distressed situations, where you get real “distressed” players like Avenue, Oaktree, and Apollo involved — have no desire to use covenants to take control of a company.

As for calling the credit cycle, I definitely see Merkel’s point, though I would prefer to look to the issuance of dividend deals, PIK loans, and holdco loans as real signs that we’re getting toward a top.

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By: FelixSalmon http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47183 Mon, 03 Jun 2013 15:10:17 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47183 @absinthe, I think you’re confusing default rate and recovery rate here. Everybody agrees that cov-lite loans have lower default rates, that may or may not be a function of them being more assiduously underwritten. But are you also saying that higher underwriting standards lead to a higher recovery rate? As high as 90%?

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By: dsquared http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47178 Mon, 03 Jun 2013 06:12:29 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47178 I was doing research on this in the 1990s and the subject was a well-worn path even then. Covenants don’t work. They don’t protect lenders – the only one that works even a little bit is the negative pledge, and there are lots of situations (mainly leveraged buyouts) where it’s obviously inappropriate to include a negative pledge. Felix is right here – what we’re seeing is not some kind of collapse in lending standards (if this was happening we would be seeing a lot of different pieces of evidence, not just this one point). We’re just seeing the gradual dawn of lenders actually thinking about what covenants a loan agreement really needs rather than using boilerplate.

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By: absinthe http://blogs.reuters.com/felix-salmon/2013/06/02/felix-salmon-smackdown-watch-cov-lite-edition/comment-page-1/#comment-47173 Mon, 03 Jun 2013 00:30:09 +0000 https://blogs.reuters.com/felix-salmon/?p=21936#comment-47173 “For one thing, as Moody’s discovered, cov-lite loans do not default with higher severity than normal loans.”

Again, this is not evidence for or against pursuing one or the other. This is a fact about the *kind* of loans that end up in each bucket, and the standards it took to get them there. Cov-lite loans possibly *needed* higher underwriting standards because of the lack of covenant and consequently have a lower default rate.

This is not clean data coming from a careful experiment that you can use to argue your point. The empirics do not indicate what you think they indicate.

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