Weakened bank loan terms for PE firms vex Nordic financial watchdogs

Danish financial regulators are worried about the rise of covenant-lite loans for private equity firms from the country's banks – and their counterparts in Sweden see similar developments.

Jyske Bank (picture above) and Nykredit are more open to taking risk when lending money to Private Equity buy outs. | Photo: Ritzau Scanpix/Mikkel Berg Pedersen

Fierce competition between the banks to lend to private-equity firms is making itself particularly apparent in loan terms – the so-called covenants.

Recently, the Danish FSA reviewed six financial institutions and found that PE firms in some cases use the lenders' rivalry to obtain loan terms that are more relaxed – also known as "covenant lite" –  which is giving the authority headaches.

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