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EM market covenant quality score weakens further - Moody's

Last update: 21/10/2019
KUALA LUMPUR, Oct 21 -- The covenant quality (CQ) score for emerging markets (EM) globally weakened in the six months ended Sept 30, 2019, but the score remains stronger than that for non-EM Europe, the Middle East and Africa (EMEA) and North American issued bonds, Moody's Investors Service said in a new report.

“The average CQ score for full-package EM bonds weakened to 3.35 (moderate) for the six months ended Sept 30, 2019, from 3.25 (moderate) for the six months ended 31 March 2019.”

“The weaker score was driven by substantial issuance from China, with Chinese bonds increasingly including credit facility debt carve-outs that typically can be secured under the permitted liens carve-outs, resulting in significant potential liens subordination,” said Moody's Vice President and Senior Covenant Officer Jake Avayou in a statement today.

Nevertheless, the report stated that the average CQ score remains considerably stronger than for non-EM EMEA and North American bonds issued in the same period in four of the six risk areas that Moody's scores.

“Liens subordination scores are weaker than non-EMEA bonds but remain stronger than North American bonds, while structural subordination remains a key area of weakness. Moody's scored 75 EM bonds issued during the six months ended Sept 30, 2019, of which 55 were full-package and 20 were high-yield lite,” it said.

According to Moody’s, Asian companies accounted for 80 per cent of EM bond issuance, with Chinese companies, in turn, accounting for 85 per cent of the Asian bonds. Latin America accounted for 13 per cent of EM bond issuance, and EM EMEA for 7.0 per cent,” it said.


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