Moody's recently announced the introduction of their Covenant Quality Assessment Service.
Bond investors have become increasingly concerned about event risk and the absence of meaningful covenants in bond indentures, leaving them exposed to potential credit losses. Well-constructed covenants can provide bondholders with protection, particularly in regard to event-driven credit risk. In Moody's view, event-related restrictions are critical to bond-value preservation, assuming carve-outs are modest and are based on a firm's needs in the course of normal business.
Covenant Quality Assessment (CQA) reports will provide a rigorous and consistent framework for evaluating covenant quality on individual bond offerings. As part of this initiative, Moody's will also report on market norms for covenants over time, by sector, and by region.
Moody's Covenant Quality Assessment reports are available on Alacra and the Alacra Store. A sample report can be viewed here. Download covenant_quality.pdf
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