The strength of speculative-grade bond covenants, which arewritten into the terms of debt agreements as a means to protectinvestors, fell to a two-year low in November, according to Moody'sInvestors Service.

The average covenant score, in which 1 is the strongest and 5the weakest, was 4.15 last month, the lowest since the ratingcompany began tracking the data in January 2011. Thirty percent ofthe bonds issued in November were so-called covenant lite, lackingsuch features as restricted payments and incurrence stipulations,compared with a 17.2 percent historical average, analysts led byAlexander Dill wrote in a report dated yesterday.

“November issuance was the weakest since the start of ourcovenant scoring,” the analysts wrote. “Abnormally light issuanceis often dominated by more creditworthy issuers with weakcovenants.”

The weakest sector was chemicals, according to the report, withbonds from a unit of Huntsman Corp., the third-biggest producer oftitanium dioxide, and Parma, Ohio-based GrafTech International Ltd.scoring the lowest possible grade.

November was the second consecutive month that Caa rated bondshad weaker average scores than B rated bonds, the analysts wrote.Lower-rated bonds normally have stronger covenant packages sinceinvestors expect weaker credits to offer more protection, Moody'ssaid.

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