Further evidence on corporate bonds with event-risk convenants: Inference from Standard and Poor's and Moody's bond ratings

A study considers potential differences in the appraisal of event-risk covenants by the 2 rating agencies, S&P and Moody's. While S&P supplements its traditional bond ratings with event-risk covenant rankings, Moody's incorporates its judgment of these covenants directly into its bond ratings. The results show that, on average, Moody's rates bonds with even-risk covenants higher than S the difference, however, is not statistically significant. Regression analysis shows that the S&P event-risk rankings are significantly, positively related to bond yield spreads, indicating that the market values event-risk covenants and that greater yield spreads are associated with lower even-risk protection.