Written by Matt Tracy

According to a recent report by Moody’s Ratings, numerous US companies are increasingly pursuing more flexible covenants in their credit agreements. This move is seen as a tactic to enhance their debt pools while bypassing the need for approvals from all current lenders.

Weak Credit Profiles Push Corporations Toward More Flexible Agreements

Moody’s revealed in its report that US corporate borrowers with faltering credit profiles are pressuring their lenders for more lenient agreements. They aim to secure more debt without having to solicit full consent from all their current lenders, especially as they grapple with issuing new debt in public markets.

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The Impact of Covenant Changes on Debt Raising

Companies have been striking deals that involve covenant modifications to boost their ability to raise further debt, arguably for opportunistic reasons or to evade liquidity crunches. Moody’s states that such arrangements can lead to debt load increases ranging from 40% to a staggering 300% of their EBITDA.

Such significant rises in debt load pose a substantial credit risk to existing lenders, especially when borrowers’ private equity sponsors utilize the additional debt for dividend recaps, add-ons, and acquisitions, notes Moody’s.

Recent Deals Indicate Shift Towards Greater Debt Capacity

In a number of recent transactions, borrowers have demanded more flexible covenants to enable enhanced debt capacity. This has been observed in roughly 10% of credit agreements (nine out of 89) between the start of 2024 and May 2025.

Significantly, all these instances involved PE-backed borrowers, including the initial proposed term sheets for debt from PE firm Turn/River Capital’s leveraged buyout of IT systems provider SolarWinds in March, and KKR’s leveraged buyout in May of derivatives market software provider OSTTRA.

Borrowers Gain Unrestricted Access to Debt

These fresh transactions underline a growing trend of borrowers gaining “unfettered access” to debt, even those in financial distress. This comes as lenders in the public debt market experience increasing competition from those in the burgeoning private credit market.

Article by Matt Tracy in Washington; Edited by Matthew Lewis