Moody's says high-yield bond covenant quality improves in April

By Cristal Cody

Tupelo, Miss., May 12 – Moody’s Investors Service said on Tuesday its North American Covenant Quality index improved to 4.26 in April from 4.36 in March on the strength of secured bond issuances but overall remains weak.

The average covenant quality score for the month of April came in at 4.12, compared with 4.25 in March.

Moody’s measures bond covenant quality on a five-point scale with 1.0 for the strongest investor protections and 5.0 for the weakest.

“Seven senior secured full-package bonds, with an average covenant quality score of 3.31, allowed both the monthly score and the overall index to improve in April,” Moody’s senior covenant officer Evan Friedman said in a release. “That said, April was the eighth consecutive month in which the index came in weaker than 4.20, indicating that investor protections overall remain weak.”

The covenant quality of B-rated bonds improved significantly in April to 3.81 from 4.08 in March and a record low of 4.61 in February.

Bonds rated B comprised 58% of April issuance, down from 61% the prior month but also above the historical average of 50%, Moody’s said.

Murray scores best

The most protective bonds with full high-yield covenant packages priced in April came from Murray Energy Corp. with a covenant quality score of 2.43, followed by Radio One, Inc. at 2.49 and Halcon Resources Corp. at 2.84, Moody’s said.

Murray Energy sold $1.3 billion of 11¼% second-lien senior secured notes due 2021 (B3/B-) on April 9.

Radio One priced $350 million of 7 3/8% senior secured notes due 2022 (B2/B) on April 2.

Halcon sold $700 million of senior secured second-lien notes due 2020 (B2/CCC) on April 21.

JLL/Delta scores worst

The least protective bond packages brought in April were from JLL/Delta Dutch Pledgeco BV with a covenant quality score of 4.84, followed by bonds from Trinseo Materials Operating SCA at 4.59 and Levi Strauss & Co. at 4.59, according to the report.

JLL/Delta sold $550 million of 8¾% senior PIK toggle notes due 2020 (Caa2/CCC+) on April 29.

Trinseo priced $300 million of 6¾% senior notes due 2022 (B3/B-) on April 23.

Levi Strauss brought $500 million of 5% senior notes due 2025 (Ba2/BB/BB-) on April 20.

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