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Beware Asian high yield bond covenants

By NexChange
Capital Markets

Moody's Investors Service reckons that the financial reporting covenants for Asian high-yield bonds are weak. It’s yet another red flag to the Fed as it mulls over its interest rate decision.

"Currently, for the vast majority of Asian high-yield bonds, the company only needs to provide the trustee with financial reports after they are filed with the relevant stock exchange. Therefore, if a company fails to file such reports with the relevant exchange, there is no breach under the indenture," said Jake Avayou, a Moody's vice president and senior covenant officer, at the release of report this morning. (subscribers only)

"By comparison, in the US, as a result of litigation, high-yield bond covenants expressly tie the delivery of financial reports to the filing deadlines of securities exchanges, while Asian covenants have not done the same and maintain ambiguous language that is not protective for bondholders," says Avayou.

Investors beware.
Photo: Rutger van Waveren

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