Jan 27, 2020

Covenant loan quality continued to weaken in 2019

Reproduced from Moody's; Chart: Axios Visuals

The quality of North American leveraged loan covenants rose back near its weakest level on record in the third quarter of 2019, according to ratings agency Moody's.

What it means: Moody's Loan Covenant Quality Indicator (LCQI) "tracks the degree of overall investor protection in the covenant packages of individual speculative-grade leveraged loans issued in the US and Canada," the company says.

  • Loan covenant quality is measured on a five-point scale, with 1 meaning the strongest investor protections and 5 meaning the weakest.

The intrigue: "The weakening protection is all the more striking because it continued even as volumes declined and spreads widened from Q2 to Q3," Moody's senior covenant officer Derek Gluckman said in a statement.

  • "Normally, covenant protections would improve in such market conditions. But the findings suggest that risks are increasing and that while investors are voicing caution, they are not effectively pushing back on permissive covenant terms."

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FICO score changes could hurt Americans already facing debt issues

Illustration: Aïda Amer/Axios

The creator of FICO credit scores is enacting changes in how it rates consumers' debt levels and their speed of repayment, the Wall Street Journal reports.

Why it matters: The decision, which impacts the most widely used credit score in the U.S., could lower the scores of those who fall behind on loan payments, sign up for personal loans or have rising debt levels, likely making it harder for many Americans to get approvals for loans.

Go deeperArrowJan 23, 2020

S&P finds record low credit-ratings downgrades

Illustration: Sarah Grillo/Axios

The number of companies around the world that had their credit ratings downgraded from investment grade to speculative grade — so-called fallen angels — hit the lowest level in 23 years, S&P Global reported Thursday.

Context: There were only 19 fallen angels last year, which marked the fourth consecutive year the number has declined, the longest stretch on record.

Go deeperArrowJan 24, 2020

A historic fortnight of bond buying

Data: Investment Company Institute; Chart: Andrew Witherspoon/Axios

Investors have gotten very bullish in the past two weeks, but it's not stocks they're buying, it's bonds — especially highly rated, low-yielding investment grade corporate bonds.

Why it matters: Unlike in past market rallies when cash flooded into traditionally risky assets like stocks and high-yield bonds, money is flocking to traditionally safe alternatives even after 2019's stellar gains.

Go deeperArrowJan 23, 2020