Covenants Cheat Sheet (European Bonds): Dividend-To-Debt Toggles Continue to Fall; Sponsors Shift Towards More Aggressive Tests in Ratio-Based Investments Basket

Legal Analyst: Azzurra Camillieri Data: Elisabeth Campbell     Relevant Item: Covenants Cheat Sheet – PDF Format   Key Takeaways   Dividend-to-debt toggles falling out of favor: Toggles appeared in just 30% of deals in the last four quarters to June 2026, down from 36% in the prior period, while the more aggressive 2x toggle all but disappeared, showing up in only 1% of deals. TNLR tests continue fading in sponsor-backed ratio-based investments: Fewer than half of sponsors now require a total net leverage ratio test for ratio-based investments, in extension of a trend flagged in the prior report. Deleveraging requirements widen at the extremes in ratio-based restricted payments: Neoen’s 2031s set a new high at 4.70x headroom at issuance, while INEOS Finance’s 2031s from May required 4.05x deleveraging. Even so, median deleveraging requirements tightened in the period. Our Covenants Cheat Sheet gives users a summary of the range and median size of the most typical baskets found in European high-yield bonds over the last four-quarter period, or L4Q. It also shows how common (or rare) certain aggressive provisions are. Examples include the prevalence of uncapped adjustments for cost savings and synergies, exclusion of revolving debt from ratio calculations and[...]