Our comments reflect the considerations of an issuer, although the issuer view must itself take account of the investor perspective and the overall functioning of the market. Our members have expressed various views which we have collated in this response.
In summary your proposal involves Moody’s developing a systematic approach to financial covenant research and assessment with associated commentary. Additionally your intention is to review standard market practice by industry sector and region.
By and large for markets to operate efficiently one would expect there to be a high level of access to information and understanding in the market. In the equity markets it is accepted that companies need to communicate well with shareholders. In the bond markets this is now largely accepted too, although it is perhaps a more recent phenomenon.
Transparency on the terms and conditions in a bond is to be welcomed, and the issuer will always provide the full details of any covenants in the relevant bond prospectus. It is then up to investors to review, analyse and consider if the covenant package is satisfactory from their point of view. Some investors have called for the issuer to help in explaining the important terms. The issuer cannot necessarily do this since by summarising or flagging what it thinks is important there is a danger that the issuer may be accused of misleading the investors. However if investors feel it useful to have assistance in performing this review then the CRAs could take on this role.
