WTF is the point of low amort structures in DL/PC/lev lending?

Why not just do interest only? Can someone explain to me the purpose/history or regulatory background of low amortization deals?  Explain it to me like I am an idiot (which I am).  1% of even 2.5% per annum is not materially reducing the commitment and credit risk…so I simply don't understand why the market doesn't shift to I/O deals.  I've seen credit committees squirm and make a fuss over 1.0% of amortization….I mean cmane get a grip fellas.  Are you really going to lose this deal over 100bps of annual amortization?

Additionally, amort tends to causes extreme headache for me as a lender in syndicated deals (or really any deal for that matter).  My operations team simply cannot restrain themselves from reaching out to me every time there is some sort of "issue" and this is exacerbated by large multi lender deals.  However, it is entirely possible that my ops counterparts are just not good at this part of their jobs. Idk

My miniature brain can think of two possible explanations for these dumb low amort structures:

1.  Its just the principle of having the borrower demonstrate the ability to return money to the lenders AND before anybody says "bUt WhAt aBoUt FiXeD ChArGe CoVeRaGe rAtiOs?"

Idk bruh use a different proxy for cash flow as a secondary covenant or who cares since everyone seems to be doing cov-lite these days anyway


2. Some lame regulators at the OCC (or wherever the fuck) can sleep better at night with rules requiring a miniscule amount of amort and banks also want to avoid stupid amort-lite designations.   They can't seriously think this is going to keep banks in check.  This also does not explain why non-regulated institutions (e.g., private credit and other direct lenders) still use the same 1% p.a. structures.

Did I just discover the next evolution of mm lending (i.e. no amort)??? Perhaps. If I'm a credit fund, I'd only be offering ginormous unitranches with no amort. I am aware this product already exists, but am questioning why no amort is not prevalent even in non-uni deals.

Did some quick googling and still can't figure it out.  Figured I'd ask you bozos before I ask my director and get terminated on the spot for questioning the sacred 1% p.a. amort convention.

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May 7, 2022 - 7:08pm
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