The covenant quality of North American high-yield bonds recovered only modestly in March from its worst ever on record a month earlier, rating agency Moody’s said on Tuesday.
Following are highlights from the report:
- The covenant quality indicator (CQI) improved slightly to 4.45 in March from its record high of 4.53 in February. A higher score denotes weaker covenant quality on a scale from 1 to 5.
- A heavy concentration of Ba-rated bonds (48%), which typically carry weaker protections than lower-rated bonds, keeps the CQI in weakest-level territory.
- For only the second time since tracking began in 2011, more than 30% of the bonds in the CQI are senior secured.
- Secured bonds typically feature significantly stronger covenant packages than unsecured bonds with historical average scores of 3.48. The secured bonds in the March CQI averaged a CQ score of 4.31.
- The concentration of private equity bonds in the CQI nearly doubled in March, moving to 24% from 13% in February and nearing the long-term average of 28%.
- Average scores for B-rated and Caa/Ca-rated bonds improved.
- The bond with the strongest protections in March was issued by Ashton Woods USA, followed by Centennial Resource Production
- The unsecured tranche of the bonds issued by Panther BF Aggregator LP (Power Solutions) had the weakest covenant quality in March with a CQ score of 4.95