High-Yield Covenant Quality Falls to Two-Year Low

Thirty percent of bonds issued in November were covenant-lite, Moody’s says.

The strength of speculative-grade bond covenants, which are written into the terms of debt agreements as a means to protect investors, fell to a two-year low in November, according to Moody’s Investors Service.

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

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