Module III· DCM — Investment Grade & Senior DebtAdvanced
Question

How do covenants differ in investment-grade bonds versus high-yield bonds?

Answer

Investment-grade bonds usually have lighter covenants because issuers have stronger credit quality and investor base focuses on ratings and liquidity. High-yield bonds have tighter covenant packages restricting debt incurrence, liens, restricted payments, asset sales, and change of control. IG covenants are often maintenance-light; HY covenants protect downside and recovery.