Novel protection could curb loopholes in junk debt deals, Moody's says

- Stressed junk-rated companies were coming up with new ways to restructure their debt which benefited some creditors over others but protections to close loopholes in deal documentations that enabled them are starting to emerge, said a Moody's report.

Armed then with a supermajority , these companies then got approval for debt restructurings that helped them prevent a default, the report said.This group of new consenting lenders now had a bigger claim on the company's assets at bankruptcy before other creditors. And given their enhanced position, they were more willing to provide additional liquidity making such transactions a crucial tool among stressed companies who need to restructure, it added.

Some creditors were now demanding an extra level of protection which stops companies from issuing more debt and lower their claim on the company's assets during bankruptcy. "The move to adopt such features has lagged the emergence of new risks, but the trend towards increasing adoption has been consistent over the last few years and reflects how seriously creditors take these concerns," the report's authors wrote.This dividend stock is sure to benefit from ongoing cuts in the key interest rate and is already seeing some major opportunities ahead.

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