Bond covenant trends in 2020: what to expect

Author: Karry Lai | Published: 8 Jan 2020

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 remain low.

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.

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