Despite an overall improving outlook, there are still pitfalls investors ought to be mindful of within the markets, highlighted in this slide.

The top left chart shows covenant-lite loan issuance as a share of leveraged loans issued, which has soared over the last few years. Investors ought to be mindful of how much protection the terms of these loans actually offer. The top right chart shows the share of total transactions with EBITDA adjustments, which may paint a rosier accounting picture for those transactions than reality.

Covenant-lite issuance and EBITDA adjustments may not be as relevant to investors when the economy is strong, but during and after a recession less stringent standards can be costly. The bottom left chart shows the default rates for U.S. Cov-lite and cov-heavy loans. The bottom right chart shows corporate debt recovery rates, which are well below long-term averages across the credit spectrum, meaning when challenges arise, investors may be able to get back much less than they expected after a default.