Throughout 2020, covenant quality will likely continue to
weaken across the globe in a low yield environment. According
to experts in the high yield space, issuers are expected to
maintain the upper hand for as long as global interest rates
While covenants have been weakening at a global level for
some time, their quality is deteriorating in North America more
rapidly than in other parts of the world. According to research
by Moody’s, the divergence – whereby
restrictive covenants in Europe are more protective than North
America – reflects a trend in North American
investors’ willingness to sacrifice covenant
protections for yield.
Sponsors will still be winners
In the US, sponsors will likely continue to influence
covenant packages, negotiating ever-more favorable deals on
behalf of issuers.
"This is a multi-year trend with expanded restricted payment
builder baskets and changes to the way such baskets are
calculated," said Jason Elder,...