Moody's: Asia bond covenant quality score for Q4 2016 strongest since Q3 2014

Moody's Investors Service says that the average covenant quality score for high-yield bonds in Asia during Q4 2016 was the strongest since Q3 2014.

"The average covenant quality score for Asian high-yield bonds issued in Q4 2016 was 2.60, slightly stronger than the 2.73 in Q3 and -- as indicated -- the strongest quarterly score since Q3 2014," says Jake Avayou, a Moody's Vice President and Senior Covenant Officer.

"Furthermore, the 2.60 score is in line with the region's average score of 2.57 from January 2011 through September 2016 and it also remains much stronger than the global average of 3.47 and the other regional averages of 3.01 for Latin America; 3.18 for EMEA; and 3.71 for North America," adds Avayou. "A lower score denotes stronger covenant quality on our scale from 1.0 to 5.0."

Moody's conclusions were contained in its just-released report, "High-Yield-Bond Covenants - Asia: Q4 Covenant Quality Strongest in Two Years".

During Q4, 13 high-yield bonds cleared the market, which was characterized by favorable conditions. The Q4 figure was also the highest since Q2 2015, when a total of 13 bonds also cleared.

Moody's attributes the strengthened covenant quality score for Q4 to the rise in protection in four of six risk areas from Q3: cash leakage; investments in risky assets; leveraging; and structural subordination. Meanwhile, liens subordination weakened and change of control showed little change.

However, the average covenant quality score for Chinese property developers' bonds weakened in Q4, with 6 of the 13 bonds which cleared being from these issuers.

The average overall average covenant quality score of 2.92 for Chinese developers was weaker than their average of 2.75 from January 2011 through September 2016, but in line with 2.93 in Q3 2016.

During Q4, Studio City Company Limited (B1 negative) scored 1.57, the strongest score of the quarter, while Lippo Karawaci Tbk (P.T.) (Ba3 negative) scored the weakest at 3.30 (moderate).