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Capital Markets

Turnaround in Covenant Credit Quality

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September 09, 2019

The steady decline of covenant credit quality in leveraged loans appears to be reversing, at least on the margins, as investors anticipate lower rates and borrowers favor high-yield bonds over loans.

A recent report by Moody’s Investors Service notes that the rating agency’s Loan Covenant Quality Indicator (LCQI), in which 1.0 denotes the strongest covenants and 5.0 the weakest, fell 11 basis points in the first quarter to 3.92, the lowest score since third quarter 2016.
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