Even as the debt markets pull back in the face of a tottering Greece and a fragile euro zone, sponsor-backed corporate bond issuers are quietly wrestling control from noteholders. The signs are subtle but to observers who have seen it all before, telling. Small changes in the legal language of debt agreements suggest that the kind of covenant easing that private equity sponsors love is occurring, in some cases providing the opportunity for "unlimited" dividends.

A week before filing its May 25 initial public offering prospectus, Troy, Mich.-based auto parts company Delphi Automotive LLP issued $1 billion in senior notes, $500 million of which were 6.125% senior notes due 2021. The notes were designed to repay part of Delphi's debt under its existing credit agreement. But buried in the indenture outlining the covenants was a carve-out that allows for "unlimited restricted payments," that is, dividends, according to a report by covenant research firm Xtract Research LLC.

Industry professionals say these types of carve-outs, while not yet market norms, have been on the rise since early 2010. "The real concern from a holder's perspective is that the asset base is going to deteriorate, and with these covenants it won't default until it's too late," says Justin Smith, a senior analyst with Xtract. "As a result, there's that real risk that the assets will deteriorate and decline in value."

The once bankrupt Delphi, owned by hedge funds Silver Point Capital LP, Elliott Management Corp. and Paulson & Co. as well as buyout shop Oaktree Capital Management LP, will be able to make such payments as long as the total leverage ratio does not exceed 3.5 times Ebitda, according to its indenture. Given that Delphi's Ebitda in 2010 was $1.63 billion, according to the IPO filing, that's sizable. Xtract says such a carve-out made Delphi's debt a "weak" restricted payment covenant and thus a risk to investors.

Normally, companies will require compliance with both fixed-charge coverage ratios, which indicate a firm's ability to pay financing expenses like interest and leases, and leverage ratio tests to pay a dividend. Not only are these not unlimited, they usually cut off at some percentage of net income. To have further dividends subjected only to a leverage test was something lawyers and bankers first began seeing in the first quarter. "It essentially puts a floor on the leverage, because if the leverage ever gets below that, they'll put more on," says Steven Rutkovsky, a partner at Ropes & Gray LLP who specializes in debt financing for private equity clients. "It came about because dividend recaps were and continue to be a bigger portion of the debt being issued," he says. "Given the popularity of the dividend recap, it's not surprising that sponsors are looking for ways to do future div recaps without taking out the bonds."

Through June 14, issuers have tapped the leveraged finance market for $49.4 billion of recap paper, split between $18.7 billion of high-yield bonds and $30.7 billion of loans, according to data from Standard & Poor's Leveraged Commentary & Data unit.

While on the rise, these unlimited dividend provisions still would not be considered a "market" term, or one that appears in agreements almost by default. But what has become relatively standard is something called a "build-up basket," which allows the company to leverage up for uses like acquisitions or other investments. The build-up basket permits a company to pile on debt as long as a secured leveraged test is met. For example, chipmaker Freescale Semiconductor Inc., owned by major private equity firms Blackstone Group LP, Carlyle Group, Permira and TPG Capital, issued $750 million in senior unsecured notes on June 10. Tucked away on page 104 of its indenture is language that says any debt can be incurred as long as ­Freescale's consolidated secured debt ratio is less than 3.25 times Ebitda.

As debt covenants weaken, and more debt is layered ahead or squeezed next to other noteholders, other provisions that will allow issuers to make decisions that could decrease the value of the assets will undoubtedly emerge. Some observers view this eventuality with trepidation. As Smith says, "All of this leads to lower recovery rates."