Moody’s reports high-yield bond covenant quality improves in March on oil and gas issuance

By Cristal Cody

Tupelo, Miss., April 14 – Moody’s Investors Service said on Tuesday the average North American high-yield bond covenant quality score in March improved to 4.25 from the record wide of 4.51 in February on a jump in activity in the oil and gas sector.

“The oil and gas sector resumed its position as the leading issuer of high-yield bonds in March, after issuance slowed in tandem with the plunge in oil prices,” Evan Friedman, senior covenant officer at Moody’s, said in a release. “Oil and gas bonds accounted for 18% of last month’s issuance, and their average covenant quality score of 3.96 was significantly stronger than the market.”

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.

Moody’s said its covenant quality index weakened to 4.36 in March and remains near a record low of 4.42 set in November, according to the report, “Bond Covenant Quality Remains Near Record-Low For Seventh Consecutive Period.”

The covenants index uses a three-month rolling average and measures bond covenant quality in six categories.

The most protective full high-yield packages in March came from Comstock Resources Inc., which scored 1.71, followed by GFL Environmental Inc., at 2.70 and Rite Aid Corp. at 2.89, Moody’s said.

Comstock priced $700 million of senior secured first-lien notes due 2020 (Ba3/B+) at par to yield 10% on March 4.

GFL sold $250 million of senior notes due 2020 (B3/B) at 99.488 to yield 8% on March 11.

Rite Aid priced $1.8 billion of senior notes due 2023 (B3/CCC+) at par to yield 6 1/8% on March 19.

The weakest covenant quality scores in March came from Crestwood Midstream Partners LP at 4.93, followed by IMS Health Inc., with a 4.80 score, and Pilgrim's Pride Corp. at 4.73.

Crestwood priced $700 million of senior notes due 2023 (B1/BB) at par to yield 6 ¼% on March 9.

IMS Health brought €275 million of notes due 2023 (B3/B+) at par to yield 4 1/8% on March 17.

Pilgrim’s Pride sold $500 million of senior notes due 2025 (B2/BB) at par to yield 5 ¾% on March 4.

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