Lenders too risky, debt-laden companies are increasingly demanding protection from financing manoeuvres used to undercut creditors when times get tough.

A recent crop of leveraged loans demonstrates investors’ heightened concern with protecting their assets. In some recent deals, money managers have successfully closed loopholes borrowers might have tried to exploit if higher-for-longer interest rates overwhelmed their finances.

The move is a response to years of controversial financial manoeuvres – once called creditor-on-creditor violence, now more politely called liability management transactions – that leave some lenders out in the cold. And the resistance is spilling over to the world of private credit, too, which saw its veneer of safety shattered in May after a Vista Equity Partners-backed firm moved some assets out of reach of its private credit lenders.

“Because the market is so hot, investors are willing to consider lending to challenged companies, but in order to get those deals across the finish line, they want incremental protections,” said Robert Schwartz, a portfolio manager at AllianceBernstein.

The push for assurances on collateral is coming despite fierce competition for deals and indicates borrowers face limits on their ability to change the standing of existing creditors to get the financing they need.

A key deal came last month, when health-transportation provider ModivCare had to amend documents on a US$525 million financing to include measures such as a ban on “double dip” moves, which give new lenders claims against collateral that has already been pledged elsewhere. The terms in some other recent transactions such as Gray Television, City Brewing and Staples also offer investor protections that are better than the three-month average, according to data from a research service that grades credit agreements.