Which pricing or covenant implication is commonly associated with covenant-lite loans?

• A. Stricter pricing or later covenants may be required.
• B. Lower pricing due to reduced risk.
• C. No impact on covenants or pricing.
• D. Immediate default triggers without covenants.

Answer: (C)

Covenant-lite loans are characterized by fewer and less restrictive covenants, especially maintenance covenants. Because protections for lenders are weaker, they usually demand a higher price for taking on that extra risk, i.e., a higher interest spread or pricing. At the same time, the covenants that are present are looser or come later in the loan, meaning borrowers have more flexibility and fewer ongoing financial-maintenance tests. So the best way to describe the typical implication is that pricing tends to be higher and covenants are looser (later or less restrictive). The other options don’t fit this pattern: pricing isn’t lower due to reduced risk, covenants and pricing are indeed affected, and there are still default triggers even with cov-lite terms.