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Guarding Against Uncle Sam; Lenders, unnerved by recent Fed interventions, are exploring whether covenants can protect against the risk of meddling legislators.

Article Excerpt
Byline: Aleksandrs Rozens

In the past year, investors have watched the federal government play a growing role in the credit markets. Whether through the seizure of the nation's housing agencies or through bankruptcy filings of Lehman Brothers, General Motors and others, Washington has become a major player in creditor circles. Moreover, legislative efforts in both the Hartmarx bankruptcy and Republic Windows and Doors underscore that Fed interest is not confined to companies deemed "too big to fail."

Now the flurry of activity has some wondering if it's time to rewrite loan documents and covenants to address concerns specific to government intervention. Establishing a new recipe to protect creditors would be tough, but one thing is for sure - borrowing costs will be higher for some issuers.

"People are looking at any company that may come under the government's thumb, and maybe they look for more compensation, or maybe they don't play at all," forgoing investments in the company's debt, says Dan Castro, portfolio...

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