Difference between a levloan and HY bond
Can anyone explain the key differences between a leveraged loan and a High-Yield bond?
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a loan is syndicated between banks high yield bonds are sold to institutional investors
loans have floating rates hy bonds have (usually) fixed rates
loans have maintenance covenants bonds have incidence covenants
yields on bonds are generally higher than loans
To add to that, loans tend to have a shorter life, higher seniority and some sort of amortization (gradual payback).
One last thought... Capital Structure.
Loans tend to be higher on the capital structure than High Yield, meaning that in the event of default Loans will pay out before HY Debt.
DontMakeMeShortYou already said this - higher seniority = higher in the capital structure
Thanks. What's the difference between a maintenance covenant and incident covenant, if you don't mind?
a maintenance covenant requires the borrower to maintain a certain level of activity. an incurrence covenant (this is what the other guy called an "incidence covenant") only takes effect if the borrower is taking a specified action
maintenance covenant example: the borrower must maintain a debt to ebitda ratio of less than 5.0x. the ratio will be tested for compliance on a quarterly basis and if the borrower is not in compliance they are in default
incurrence covenant example: the borrower must not incur new/additional debt unless the borrower's debt to ebitda ratio is less than 5.0x after giving pro forma treatment for the new debt. this covenant will not be tested on a regular basis and does not have to be "maintained," it will only be tested in the event that the borrower incurs new debt. so if the borrower has this covenant and issues new bonds that bring debt to ebitda to 6.0x, the borrow is in default (in other words, they can't take this action). if the borrower's debt-to-ebitda ratio goes above 5.0x because EBITDA is declining and not because the borrower incurred new debt, then there is no default under this covenant
loans also amortize while HY bonds are bullets
Not 100% true. Term Loan Bs (institutional clients) typically have bullet payments and amortize much slower than their Term Loan A counterparts (typically @ 1% or so)
https://www.lcdcomps.com/lcd/f/primers.html
[quote=James07]https://www.lcdcomps.com/lcd/f/primers.html[/quote]
was just going to post that link...
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