Moody's Liquidity-Stress Index (LSI) fell to 3.2% in mid-July from 3.5% in June, continuing its downward trend and edging closer to its all-time low of 2.8%, the rating agency says in its most recent edition of SGL Monitor. Speculative-grade liquidity continues to be supported by solid fundamentals, including economic growth and favorable financing conditions.
Moody's Liquidity-Stress Index falls when corporate liquidity appears to improve and rises when it appears to weaken.
"US speculative-grade companies continue to capitalize on ready access to the credit markets amid investors' ongoing search for yield," said Senior Vice President, John Puchalla. "It's this same appetite for yield which has kept issuance relatively strong, helping many companies reduce a mounting level of maturities and amend covenants to improve flexibility."
The oil and gas LSI dropped to 7.7% in June, falling below its 8.1% long-term average for the first time since January 2015. The non-oil & gas LSI, meanwhile, stood at 2.4% in mid-July, a level that would set a record low if maintained. The declining LSI, reflecting the continuing decrease in the number of companies with Moody's lowest speculative-grade liquidity rating, SGL-4, underscores the trend towards a lower US speculative-grade default rate, which the rating agency forecasts will slip to 2.8% by June 2018 from around 3.8% today.
The risk that speculative-grade companies will violate their financial maintenance covenants also continues to decline, as indicated by Moody's Covenant-Stress Index, which slipped to 2.9% in June from 3.0% the prior month. The index has remained below its 5.8% long-term average since June last year.
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