Junk-Bond Safeguards Reach Lowest Level Since 2011, Moody’s Says
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For junk-bond investors, the trade-off between lender protections and yield has never been worse, according to Moody’s Investors Service.
More than a third of new speculative-grade bonds issued in North America in the second half of last year lacked one or both of the most critical creditor safeguards, the highest percent ever in data going back to 2011, analysts led by Evan Friedman wrote in a report released Thursday. A Moody’s gauge of covenant-quality, in which 5 indicates the weakest protections and 1 the strongest, declined to 4.26 in the period from 4.14 during the first half of 2014. Covenants are protections written into bond documents that can restrict an issuer’s ability to borrow more.