CORPORATES

SECTOR IN-DEPTH

North American Leveraged Loan Covenants

8 March 2016

Stubbornly Weak Loan Covenant Protection

Will Only Modestly Improve in 2016

TABLE OF CONTENTS
Covenant protections remain weak
We expect a modest improvement in
covenant quality in 2016
Analyzing weak characteristics
identified by regulators in connection
with leveraged loans
Moody's Related Research

Leveraged loan covenant protections remain weak. Our loan covenant quality
scores, which assess the degree of protection that a leveraged loan covenant package
provides to investors, have remained in the weak category since 2013. This suggests
that investors in today's volatile market are being exposed to rising risk as they forfeit key
levers traditionally available to them when a borrower is in financial distress.

Our data suggests that in order for covenant quality to significantly improve,
investors must push back and demand better protections. We anticipate only
modest covenant improvement in 2016, absent a major disruption in the leveraged loan
market, or heightened and sustained regulatory criticism of weak covenants.

Since publishing leveraged lending guidance in 2013, regulators identified general

credit agreement covenant protections that they deemed to be weak. Each
of these protections factor into our loan covenant quality scores, including: sales of
assets without lender approval; broad EBITDA add-backs; weak financial maintenance
covenants; use of net debt in leverage covenants; excessive headroom or cushion with
respect to leverage ratios; springing maintenance covenants; and various accordion
features, including uncapped or ratio-based incremental facilities.

Covenant cushions, and our general financial covenant scores, are slightly
improving and offering more protection for investors, but not enough to move
the scores from the weakest level. Our data also shows that the use of broad
EBITDA add-backs, net debt, springing maintenance covenants and incremental
facilities increased from 2013. Our asset sale and mandatory prepayment scores remain
moderate, with protections unchanged.

2
3

4
10

Contacts
Enam Hoque
VP-Senior Covenant
Officer
enam.hoque@moodys.com

212-553-3939

Derek A Gluckman
212-553-8925
VP-Senior Covenant
Officer
derek.gluckman@moodys.com
Evan M Friedman
212-553-1338
VP-Senior Covenant
Officer
evan.friedman@moodys.com
Christina Padgett
212-553-4164
Senior Vice President
christina.padgett@moodys.com
Glenn B. Eckert
Associate Managing
Director
glenn.eckert@moodys.com

212-553-1618

Tom Marshella
212-553-4668
Managing Director
US and Americas
Corporate Finance
tom.marshella@moodys.com

CORPORATES

MOODY'S INVESTORS SERVICE

Covenant protections remain weak

Our loan covenant quality (LCQ) scores, which assess the degree of protection that a leveraged loan covenant package provides to
investors, indicate that covenant protections remain stubbornly weak. (For more information on how we score leveraged loans, see the
shaded box on page 4). This suggests that investors especially in volatile market conditions are being exposed to rising risk as they
forfeit key levers they have traditionally been able to pull when a borrower is starting to experience financial distress.
Average LCQ scores for loans meeting our scoring criteria1 from 2013 through the first half of 2015 have remained persistently in the
weak category (3.5 to 4.4 constitute weak scores in our analysis; see Exhibit 1 below). We note that there has been no remarkable
change in our scores since regulators published their leveraged lending guidance in the first half of 2013. (See shaded box, below, for
more on leveraged lending guidance).
Exhibit 1

Moody's Average Loan Covenant Quality (LCQ) Scores

The first half of 2015 is the latest period for which complete LCQ scores are available, although extremely low leveraged loan volume during the second half of 2015, plus our preliminary
analysis, suggest that covenant quality remained in the weak category for the remainder of 2015.
Source: Moody's Investors Service

Leveraged Lending Guidance: The Basics

In March 2013, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit
Insurance Corp. issued Interagency Guidance on Leveraged Lending to discourage the origination and distribution of poorly underwritten and lowquality leveraged loans. Designed to improve and stabilize the overall banking and broader financial system in the wake of the financial crisis, the
guidance applies to certain regulated financial institutions. Regulators have since supplemented the guidance with a series of public announcements
and confidential supervisory criticism.
One focal point of the guidance was on overall leverage levels, with regulators noting that leverage level[s] after planned asset sales in excess
of 6x Total Debt/EBITDA raises concerns for most industries. But the guidance also identified general credit agreement covenant protections that
regulators deemed to be weak. Initially, regulators focused on asset sale and financial maintenance covenants, but have since elaborated on other
specific covenant characteristics that they believe should be strengthened (See Analyzing weak characteristics identified by regulators in connection
with leveraged loans).

Overlapping with the publication of the leveraged lending guidance, leveraged loan outstandings in 2013 and 2014 rose to their
highest levels since 2007, according to Thomson Reuters LPC, sustained by a low default, low-interest rate environment dominated by
investors hungry for yield. During this same period, regulators noted increased competition among lenders to originate deals, which
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

further diminished underwriting standards and covenant protections. Deal structures loosened as sponsors and borrowers were able to
negotiate additional flexibility in the form of weaker covenants.
While regulators raised the red flag for initial leverage exceeding 6x EBITDA, we note that average multiple levels did briefly jump
above 6x EBITDA (see Exhibit 2 below), with leverage levels rising shortly after the guidance was published in Q4 2013 and again at the
beginning of Q3 2014. Separately, although regulators have hinted that total debt should be calculated to include both incremental (or
accordion) facilities and available but untapped debt baskets, our initial leverage levels are based solely on outstanding debt as of the
loan closing date.
Exhibit 2

Initial Leverage Multiples (by quarter)

Source: Moody's Investors Service

We expect a modest improvement in covenant quality in 2016

While LCQ scores remain persistently weak, we forecast a modest improvement in 2016, driven by a combination of market factors.
These include (1) low leveraged loan volume, allowing investors to be more selective in the loans they purchase and to receive
protections that were not available in the red-hot market of 2013 and 2014; (2) a declining number of leveraged buyouts; (3)
regulators' continuing focus on covenants; (4) a rising speculative-grade default rate (see our report, Default Rate to Reach Six-Year
High in 2016. 29 January, 2016); and (5) market uncertainty in the face of central bank actions globally and in the US. The scope and
scale of improvements in LCQ scores would also be significantly amplified by a major disruption in the leveraged loan market or by
increased supervisory criticism by regulators in 2016, citing specific covenant components.
While we expect a modest improvement in 2016, consistently weak loan covenant quality - despite regulatory guidance over the last
two years suggests that it is up to investors to demand better covenant protections. The leveraged lending guidance is by no means
a substitute for thorough credit and documentation analysis. Indeed, our LCQ analysis shows that certain risk categories have actually
weakened since 2013, including ranking and security/structural subordination; cash leakage/value transfers (i.e., ability for borrowers to
make dividends generally); leveraging (debt incurrence); and investments in risky assets (see Exhibit 3 below).

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Exhibit 3

Breakdown of LCQ Scoring Components Since 2013

Source: Moody's Investors Service

How Moody's Scores Loan Covenant Quality

We compute overall loan covenant quality (LCQ) scores for loans meeting our scoring criteria based on a variety of factors. We measure covenant
quality across seven risk categories, each scored on a 1 to 5 scale, with 1 representing strong covenant quality and 5, the weakest covenant quality.
Each risk category is individually scored using a weighted average of scores assigned to provisions or covenant features relevant to the given risk
category. Each risk category score is then further adjusted to take into account certain features or the absence of standard protections that affect
covenant quality. The risk category scores are weighted to determine the overall LCQ score, which follows the same 1 to 5 scale. We determined the
relative risk category weights based on our view of the relative importance of the various risk categories to investors.

Analyzing weak characteristics identified by regulators in connection with leveraged loans

Regulators have specifically noted the following covenant deficiencies: (1) material dilution, sale or exchange of collateral without
lender approval; (2) enhancements to EBITDA without reasonable support; (3) reduced number of financial maintenance covenants; (4)
excessive headroom in the calculation of financial maintenance covenants; (5) presence of springing maintenance covenants, which
are triggered only when a certain amount of the revolving facility is in use; (6) the use of net debt in calculating leverage ratios; and (7)
various accordion features, including incremental facilities that allow increased debt above starting leverage and material dilution of
senior creditor claims.
We generally agree with the list of covenant deficiencies regulators have identified. However we believe investors should also focus
on other components that drive our LCQ scores. These include (1) the ability of non-guarantor entities to incur debt under the general
debt basket and other ratio-based debt baskets (a large component of our ranking and security/structural subordination score); (2) the
aggregate quantifiable baskets (or carve-outs) for permitted indebtedness, permitted restricted payments and permitted investments
available as of the initial closing date (a large component of our leveraging score, cash leakage/value transfer score and investment in
risky assets score); and (3) the use of growth baskets based on total assets in the case of general carve-outs for debt and restricted
payments (components that affect multiple risk categories for purposes of our LCQ scoring criteria).
Our LCQ scoring process identifies and tracks several sub-components within each general risk category, including component scores
for each of the covenant deficiencies identified by regulators above.
Asset Sales and Mandatory Prepayment Scores
Moodys asset sale and mandatory prepayment scores measure, among other things, the asset sale basket structure and the strength or
weakness of mandatory prepayment and reinvestment provisions with respect to collateral and other asset sales.

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Exhibit 4

Asset Sales and Mandatory Prepayment Scores

Source: Moody's Investors Service

Scores in the asset sales and mandatory prepayment risk category have been stable since 2013 (see Exhibit 4 above), offering moderate
protection to investors. Asset sale scores will likely remain flat through 2016, continuing to provide investors with a moderate degree of
protection.
Aggressive EBITDA add-backs contribute to the weakest level Financial Covenant scores
EBITDA add-backs factor into the overall financial covenants risk category score.
The EBITDA definition flows through credit agreements in meaningful ways, because the definition feeds into the calculation of
financial maintenance covenants and ratio-based incurrence baskets (see our report, EBITDA: Used and Abused, November 2014).
Very aggressive add-backs inflate EBITDA calculations (such as uncapped restructuring charges and uncapped cost savings) and score
highest/weakest in our system; minimal or no add-backs (i.e., pristine EBITDA) score lowest/strongest.
Exhibit 5

Aggressive EBITDA Add-backs Score

Source: Moody's Investors Service

The base score component for EBITDA add-backs has weakened alongside the publication of the guidance and has remained weak
since 2013 (see Exhibit 5). Although we have not noted any trends supporting an improvement in this score, continued focus by
regulators, coupled with increasing attention from investors (especially in terms of caps on cost savings), may improve these scores in
2016.

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Financial Covenants Overall Scores

The financial covenants risk category score is based on the following three subcomponents: (1) tightest maintenance covenant cushion
at issuance (also known as the financial covenant cushion score); (2) presence of one or more maintenance covenants, and (3)
EBITDA add-backs (as discussed above), with other point adjustments and scoring overrides.
Exhibit 6

Financial Covenants Overall Score

Source: Moody's Investors Service

Although financial covenant risk category scores improved slightly in the first half of 2015, the average score is above 4.40, indicating
the weakest level of protection (see Exhibit 6). Overall financial covenant component scores will continue to improve modestly and
incrementally in 2016, driven by strengthening financial covenant cushion scores as discussed below.
Financial Covenant Cushion Scores
Moodys financial covenant cushion scores are calculated based on the amount of cushion between the maximum (in the case of a
leverage ratio) or minimum (in the case of a coverage ratio) permitted covenant level and the actual ratio as of the loan closing date.
The cushion, which we measure as a percentage of adjusted EBITDA, shows how much adjusted EBITDA would have to decrease or
increase before a borrower would no longer be in compliance with the maintenance covenant.
Exhibit 7

Financial Covenants Cushion Scores

Source: Moody's Investors Service

Financial covenant cushion scores are noticeably improving (see Exhibit 7), albeit at the weakest levels.

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Although cushion scores have improved since 2013, the continued dominance of covenant-lite loans in the market continues to drag
the average score down (in deals with springing maintenance covenants, the financial covenant cushion score component receives an
automatic worst possible score of 5).
The rise of springing maintenance covenants since 2013 and other covenant-lite structures significantly undercuts covenant protections
for most term loan investors. (See Exhibit 8, below. Also see our report, The Cov-Lite Label Can Mischaracterize Credit Risk, November
2015).
Exhibit 8

Percentage of Deals with Springing Maintenance Covenants

Source: Moody's Investors Service

Nonetheless, strengthening covenant cushion scores, as demonstrated by the trend line in Exhibit 7, will likely be the primary driver of
improvements in the overall financial covenant risk category scores in 2016, but will continue to remain in the weak category as a
result of the prevalence of covenant-lite structures in the market (as shown in Exhibit 8). If investors begin to seriously push back on
covenant-lite structures in 2016, financial covenant overall and cushion scores would improve dramatically.
Use of Cash Netting
The use of cash netting is a subcomponent of our overall financial covenants risk category score. Cash netting gives borrowers the
ability to reduce the debt figure used in the calculation of leverage ratios by subtracting the amount of cash and cash equivalents on
their balance sheets.
Our scoring criteria penalizes uncapped cash netting - the rationale being that cash on hand may not necessarily be used to reduce
debt in the future. Regulators have similarly criticized cash netting for this reason.

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Exhibit 9

Percentage of Deals Broken Down by Type of Cash Netting

Source: Moodys Investors Service

Since 2013, we have noted an increase in the use of uncapped cash netting (see Exhibit 9). While uncapped cash netting has decreased
in 2015 from its 2014 high, it is still higher than in 2013. Without significant investor push-back in 2016, the percentage of deals
permitting uncapped cash netting will likely remain the same as in 2015, with the majority of deals permitting uncapped cash netting.
Incremental Facilities
The structure of an incremental facility provision factors into our miscellaneous scoring criteria (along with lender voting rights,
assignment provisions, etc.)
An incremental facility provision provides flexibility for a borrower to add additional debt under the credit agreement, generally at the
same priority level as the original loan, with the same collateral priority as existing lenders. Similar to our scoring criteria, regulators
have criticized incremental (or accordion) features that permit increased debt levels under the credit agreement above starting leverage
and the concurrent dilution of senior secured facilities.
We assign incremental scores based on the structure of the incremental provisions. No incremental capacity scores a 1 (the strongest
score), while uncapped incremental capacity, subject only to there being no default, scores a 5 (the weakest score).
As shown in Exhibit 10, incremental facility scores have significantly worsened since 2013, with the majority of deals having an
incremental structure permitting both (1) a fixed-dollar starting basket and (2) an additional amount so long as the borrower is in
compliance with a leverage ratio.
Exhibit 10

Incremental Facilities Score

Source: Moody's Investors Service

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

MOODY'S INVESTORS SERVICE

CORPORATES

Regulators have noted that [i]ncremental facilities have been included in loan agreements for a number of years, but are drawing
attention because of their increased usage in conjunction with relaxation of other structural elements such as covenants and
restricted payments. In other words, regulators likely wish to see additional or concurrent tests for incremental use (such as covenant
compliance, in addition to a simple no default requirement ) and a prohibition on using incremental proceeds for dividends (versus
other value-added transactions such as investments or acquisitions).
Incremental facility scores will remain relatively flat in 2016, with no significant changes forecasted. Dramatic improvement in
incremental facility scores will likely only be achieved by heavy investor attention to these mechanics or sustained criticism of these
structures by regulators.

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Moody's Related Research

US Corporate Default Monitor - Fourth Quarter 2015, January 2016

The Cov-Lite Label Can Mischaracterize Credit Risk, November 2015

EBITDA: Used and Abused, November 2014

Leveraged Loan Covenants: Loan Covenant Quality Scoring Criteria, April 2014

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this
report and that more recent reports may be available. All research may not be available to all clients.
Click here to access Moody's Covenants page.

10

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

MOODY'S INVESTORS SERVICE

CORPORATES

Endnotes
1 Moodys covenant team analyzes syndicated speculative-grade leveraged loan issuance over $500 million originated in the US and Canada with publicly
and timely available credit and financial documentation. The covenants team identifies whether a loan is leveraged by whether the loan is rated noninvestment grade by Moodys, followed by other characteristics such as spread, use of proceeds, presence of equity sponsor, etc.

11

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

2016 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ("MIS") ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT
RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S
PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY
ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET
VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL
FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED
BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT
RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT
RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS
AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND
EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR
RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS OR MOODY'S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT
YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW,
AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED
OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY
PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well
as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it
uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However,
MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody's Publications.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any
indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any
such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or
damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a
particular credit rating assigned by MOODY'S.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory
losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the
avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents,
representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH
RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including
corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any rating,
agreed to pay to Moody's Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain
policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and
rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at
www.moodys.com under the heading "Investor Relations Corporate Governance Director and Shareholder Affiliation Policy."
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors
Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended
to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you
represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or
indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as
to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless
and inappropriate for retail investors to use MOODY'S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other
professional adviser.
Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's
Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally
Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an
entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered
with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred
stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees
ranging from JPY200,000 to approximately JPY350,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

REPORT NUMBER 1015300

12

8 March 2016

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016

CORPORATES

MOODY'S INVESTORS SERVICE

Contacts
Enam Hoque
VP-Senior Covenant
Officer
enam.hoque@moodys.com

13

8 March 2016

CLIENT SERVICES
212-553-3939

Americas

1-212-553-1653

Asia Pacific

852-3551-3077

Japan

81-3-5408-4100

EMEA

44-20-7772-5454

North American Leveraged Loan Covenants: Stubbornly Weak Loan Covenant Protection Will Only Modestly Improve in 2016