How do bank loan covenants generally compare to high-yield debt covenants?

Bank loans typically impose stricter restrictions compared to high-yield debt. This is largely due to the differences in the credit profile and risk associated with these types of financing.

Bank loans are generally secured, meaning that they are backed by specific collateral, and lenders will impose stricter covenants to mitigate their risk. These covenants might include financial performance targets, restrictions on additional debt, limits on asset sales, and requirements for maintaining certain financial ratios. Essentially, lenders use these covenants to maintain oversight of the borrower's financial health and to protect their investment.

High-yield debt, on the other hand, is often unsecured and appeals to a different type of investor. Because these investors are typically willing to take on more risk for potentially higher returns, high-yield debt tends to have fewer and less stringent covenants. This flexibility can enable issuers of high-yield debt to operate with more freedom compared to borrowers of bank loans.

In summary, the nature of the lending relationship and the security of the debt contribute to the stricter restrictions found in bank loans compared to the more lenient covenants associated with high-yield debt.