Covenant protections in Europe’s high-yield bond market remained weak in 2024, even as issuance levels surged, according to Moody’s Ratings’ latest report, Sector-In-Depth: Covenants – European HY Bonds – 2024 Annual Report, published on March 12, 2025.
The report highlighted that average covenant quality (CQ) scores deteriorated, falling to 3.98 in 2024 from 3.84 in 2023, reflecting weaker protections for bondholders. The analysts noted that this trend is expected to continue in 2025, although recent market uncertainty could impact dynamics.
European high-yield bond issuance doubled in 2024 compared to 2023, with 129 fully-covenanted issuances. Company ratings were concentrated in the B2 and B3 range, with a noted shift down in B3 ratings and up in B2.
The report also observed that pro-issuer terms continued to dominate the market in 2024, giving companies greater flexibility and increasing risks for investors. These terms included the return of the available amount builder basket and the inclusion of a startup amount in the restricted payments builder basket.
However, investor pushback increased during the year, with investors successfully challenging terms in 15% of deals, up from 9% in 2023. Moody’s identified asset sale blockers, EBITDA add-backs, and high-water marking as key areas where investors resisted.
Another major theme was the rise in liability management transactions, which became a focus in the European market in 2024. The report cited notable transactions such as Altice France’s down-drop of valuable businesses and Hunkemoller International’s non-pro rata uptier.
