High-yield bond covenant quality improves in August, Moody’s says

By Cristal Cody

Tupelo, Miss., Sept. 9 – The covenant quality of North American high-yield bonds improved in August after two months of declines, Moody’s Investors Service said in a report on Tuesday.

“High-yield bond covenant quality improved sharply after having declined in June and July,” Moody’s said in the “Bond Covenant Quality Improves in August Amid Exceptionally Weak Volume” report. “However, only six issuers came to market, for a total of seven bonds.”

The average covenant quality score improved to 3.81 in August from 4.14 in July and 4.10 in June, according to the report.

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

The covenant quality of B-rated bonds “worsened by one point to 3.91 in August from 3.90 in July and remains materially worse than the 3.69 historical average,” the report said.

B bonds comprised 29% of issuance in August, down from 47% in July and the historical average of 50%.

Ba-rated bonds that priced in August averaged a covenant quality score of 3.93, better than the 4.58 score in July and stronger than the 4.31 historical average, Moody’s said.

Ba bonds accounted for 43% of August issuance, up from 34% in July and higher than the historical 29% average.

The average covenant quality score for the two bonds rated Caa/Ca at issuance improved to 3.52 in August from 3.91 in July and was slightly better than the historical average of 3.54, the report said.

Caa/Ca-rated bonds accounted for 29% of August’s volume, higher than the 19% brought in July and above the 22% historical average.

Warren, QVC score best

Moody’s said the most protective high-yield bonds that priced in August came from Warren Resources, Inc. and QVC, Inc.

New York-based energy company Warren Resources sold $300 million of 9% senior notes due 2022 (Caa1/B-/) on Aug. 6. The issue received a covenant quality score of 3.15.

QVC priced $600 million of 4.45% senior secured notes due 2025 (Ba2/BBB-/BBB-) on Aug. 7. Moody’s assigned a covenant quality score of 3.35 to the issue from the West Chester, Pa.-based home shopping television network.

NCSG, BWAY score worst

The weakest bond packages in August came from NCSG Crane & Heavy Haul Corp. and BWAY Holding Co., according to the report.

NCSG Crane & Heavy Haul received a 3.96 covenant quality score for its $305 million offering of 9˝% senior secured second-lien notes due 2019. The Edmonton, Alta.-based crane rental provider priced the notes (B3/B-/) on Aug. 9.

Moody’s assigned a 3.89 covenant quality score to BWAY affiliate BWAY Intermediate Co., Inc.’s offering of $650 million of 91/8% senior notes due 2021. The Atlanta-based metal and plastic container company sold the notes (Caa2/CCC/) on Aug. 7.

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