U.S. leveraged loan issuers continue to modify, waive, or suspend loan covenants amid the broader economic upheaval, with the number of covenant-relief deals in May hitting a record 43, according to LCD. This activity comes atop the 27 such deals struck in April, which broke the previous monthly record of 25 in March 2009, in the wake of the Great Financial Crisis.

There were 80 covenant-relief transactions in the first five months of this year, just 17 shy of the total for the first five months of 2009. There have been twice as many this year as through May 2015, when a slew of energy issuers undertook these deals in search of financial headroom.

Breaking down covenant-relief activity by sector, the Gaming & Hotel and Services & Leasing industries are tied at the top spot, with eight borrowers each over the last three months. The Healthcare sector comes in second, with seven deals, and Textile & Apparel is third, with six.

Of course, the covenant-relief landscape today looks different than it did during the Great Financial Crisis.

The majority of today's deals are in the pro rata segment, comprising revolving credits and amortizing term loans (which are taken on by banks and similar financial concerns), versus the institutional segment a decade ago (institutional loans are syndicated mostly to CLOs and retail loan funds).

In January-May 2009 the volume of institutional and pro rata covenant-relief activity was almost even, at $65.1 billion and $51.5 billion, respectively. Fast forward to 2020 and institutional deals accounted for only $2.3 billion of the $76.7 billion of covenant-relief volume through May.

This dynamic stands to reason, as more than three-quarters of the $1.2 trillion in outstanding U.S. leveraged loan debt today is covenant-lite, meaning there is less need or opportunity to make such amendments. Conversely, pro rata deals are required to have covenants.

For the record, in May the cov-lite share of the S&P/LSTA Leveraged Loan Index was 82%, which is around where that share has been since the beginning of the year. For reference, at the end of 2008, before the peak of covenant amendment activity during the last financial crisis, the cov-lite share was 15%.

Along with amending covenants, since the COVID-19 pandemic escalated, U.S. loan issuers have urgently approached lenders to shore up liquidity by boosting the size of their facilities. Six borrowers last month upsized their revolvers by a total of roughly $900 million. That is down from the nine borrowers that added some $1.2 billion in April and the 12 borrowers that added $2.3 billion in March, but up significantly from the previous few months.

Turning to extensions, amend-to-extend loan activity in May fell to $1.4 billion, from $5 billion in April, across transactions for Babcock & Wilcox Enterprises Inc., GNC Holdings Inc., and Chefs' Warehouse Inc. Year-to-date A-to-E activity has been on par with 2019's levels, with borrowers extending facilities totaling $35 billion.

Delving deeper into extensions, borrowers with pro rata loans focused on maturities coming due in the next three years, extending $7.2 billion due in 2021, $6 billion due in 2022, and $5.4 billion due in 2023. On the institutional side, borrowers last month mostly focused on loans coming due in 2024 or later, extending $10 billion of that debt.

Stepping back for a broader look at the maturity wall, the volume of loans coming due in 2020–2022 fell by roughly $8.5 billion between April and May, to about $84 billion, against the backdrop of $1.2 trillion in outstanding loan paper. Compared to the end of 2019, the volume of loans coming due in 2020–2022 has fallen by about $33.5 billion. The volume of loans coming due in 2023–2025, meanwhile, shrank by about $73.3 billion between the end of 2019 and May 2020, while the par amount outstanding due 2026 or later grew by $79.7 billion.

This story was written by Richard Kellerhals. Richard covers the pro rata segment of the U.S. leveraged loan market for LCD.