Xtract Research Launches New Covenant Scoring System

03 April 2019
New York (April 3, 2019) – Xtract Research, an Acuris company, today unveiled a new covenant scoring system to help quickly assess how risky an issuance is and how it compares to others in a similar market while making it easier to push back on aggressive terms.
Each U.S. credit agreement reviewed[1] by Xtract Research’s team of finance attorneys will receive a Covenant Score and a Market Score, ensuring subscribers have all the information they need to confidently act in the market.
Covenant Scores range from 0-10, with 0 being the weakest possible covenant package and 10 being the strongest[2]. Scores are based on the criteria most critical to an investor's investment decision and the methodology guarantees that the measurement is thorough and unbiased. Factors include, but are not limited to:
  • Risk of Collateral Leakage and Collateral Dilution – The borrower's ability to incur additional first lien debt and structurally senior debt, make investments in non-guarantor restricted subsidiaries and unrestricted subsidiaries, and dividend assets to shareholders.
  • Aggressive Terms – The number of aggressive terms included in the document, such as earlier maturity baskets in the incremental facility, asset sale step down provisions, the ability to dividend asset sale proceeds, EBITDA addbacks for pro forma cost savings, trapdoors and black holes.
To provide our subscribers with the complete picture, reports will also include a Market Score which is the average score of all reviewed credit agreements in the relevant market on a rolling 6-month basis. Each borrower will fall into one of three market segments: (1) sponsored borrowers with at least $100 million of opening EBITDA, (2) sponsored borrowers with less than $100 million of opening EBITDA and (3) non-sponsored borrowers. 
“As credit agreements become more and more borrower friendly and lenders have less time to evaluate covenants, lenders need a quick way to gauge how protective a new loan issuance is,” said Justin Smith, Managing Director, Xtract Research. “Our covenant scoring offers an easy-to-understand and unbiased view of how the terms in a particular deal compare to the market.”
Read more about the new scoring system here – including criteria and market definitions – and check out our latest Special Report Weaker Covenants – Which Sponsors Top the List? which provides valuable analysis powered by the new scoring system.
For more information, please contact:
Natasha Brooks
Head of Fixed Income Sales, America
(212) 686-5340
[1] The covenant scoring system is designed to score credit agreements with a TLB tranche. We will also need to review the bank book or lenders presentation to provide a score.
[2] The covenant scoring system is not designed to measure risk on an absolute basis. Almost all credit agreements with a TLB component in today’s market contain risks and are borrower friendly.