Moody's: Structured finance transactions to continue strong performance in 2018, despite some weakening in underwriting
Moody's Liquidity-Stress Indicator (LSI) began 2018 on a new low, falling to 2.5% in December from its previous record low of 2.7%, set in November and October, the rating agency says in its most recent edition of SGL Monitor Flash. Speculative-grade liquidity remains well supported by modest US economic growth and buoyant credit markets, underpinned by continued strong high-yield bond and loan issuance.
Moody's Liquidity-Stress Indicator falls when corporate liquidity appears to improve and rises when it appears to weaken.
"Despite a healthy backdrop, the LSI will likely level off and start to rise slightly in 2018, spurred by higher interest rates and the hit to low-rated borrowers from the likely curtailment of interest deductibility under the tax overhaul," said Senior Vice President, John Puchalla. "Meanwhile, liquidity in the commodity sector has less room for gains after strong improvement last year."
Upgrades and downgrades of Moody's speculative-grade liquidity (SGL) ratings were evenly split in December, at four each, Puchalla says. Retailer General Nutrition Centers, Inc. saw its liquidity rating cut two notches, to SGL-4, due partly to difficulty refinancing a term loan maturing in 2019.
Also in the retail sector, 99 Cents Only Stores, LLC completed a distressed exchange default last month and stopped filing pubic financials, with its SGL-4 rating withdrawn as a result. Conversely, E&P company Northern Oil and Gas, Inc., after obtaining a term loan, saw its SGL rating upgraded a notch, to SGL-3.
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