Banks are being asked to provide its very first pure covenant lite debt package from Europe in order to support a buyout of Elior, the French catering firm. This has caused concern in the banking community and other investors that if this is allowed, risky financing would become common again in the market.
These kinds of instruments, called covenant-lite financing has been commonplace in the US market and has raised US$42.5 billion in the last quarter of 2012 alone. These kinds of deals have been avoided by the European banking community as many seek other options with greater financial and maintenance protection provisions.
These kinds of instruments though have started to gain ground in Europe, with samples such as Alcatel-Lucent, Doncasters, Genesys and Taminco utilizing covenant lite instruments to create euro currency volumes from dollar financing.
The sale of Elior has attracted many buyout firms such as BC Partners and CVC Capital. The two are in discussion to formalize a joint bid.
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