What characterizes 'covenant lite' debt?

'Covenant lite' debt is characterized by having fewer restrictions on the borrower compared to traditional debt agreements. In a typical debt agreement, covenants are used to impose certain financial and operational restrictions on the borrower to protect the interests of lenders. These can include maintenance of financial ratios, limitations on additional debt, or requirements for asset sales.

In contrast, 'covenant lite' loans generally have fewer or even no financial covenants, which allows borrowers greater flexibility in how they operate their business and manage their finances. This can be particularly appealing in a favorable credit environment, as it enables companies to take on more risk without immediate oversight or constraints imposed by strict covenants.

The other options do not accurately reflect the essence of 'covenant lite' debt, which primarily revolves around the leniency of covenants. For example, having many borrower restrictions directly opposes the defining feature of 'covenant lite' debt, illustrating that the essence of these financial agreements is their relaxed regulatory framework. Similarly, while repayment terms can be aggressive in various types of debt, it does not define whether a loan is 'covenant lite.' The concept is more directly related to the presence or absence of covenants rather than its intended duration, meaning that