Moody's to Rate Protection in High-Yield Bond Covenants

Moody’s Investors Service (MCO) plans to begin grading the covenants of high-yield bonds based on how much protection investors get from the securities’ terms.

Each junk bond’s agreements will be scored on a one-to-five scale based on the rules for leverage, subordination and additional debt, according to an e-mailed statement from the New York-based firm. Moody’s said it plans to create an index that tracks covenant quality.

The scores will be separate from Moody’s credit ratings, according to the statement.

Speculative grade or high-yield bonds are rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s.

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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