Moody's Liquidity-Stress Indicator revisits record low in mid-October as markets remain open to spec-grade companies

Moody's Liquidity-Stress Indicator (LSI) continued its descent in October, and at mid-month revisited its record low from April 2013, Moody's Investors Service says in its most recent edition of SGL Monitor. The indicator slipped to 2.8% in mid-October from 3.0% at the end of September, with the capital markets remaining open to US speculative-grade companies despite geopolitical tensions, major natural disasters and tightening interest rates.

Moody's Liquidity-Stress Indicator falls when corporate liquidity appears to improve and rises when it appears to weaken.

"The LSI has steadily declined since most recently peaking at 10.3% in March of last year on the back of a rebound in the commodity sectors, favorable borrowing conditions and overall stable cash flows," said Senior Vice President John Puchalla. "The low LSI reflects the current strength of speculative-grade liquidity and points to a declining US spec-grade default rate over the coming year."

The LSI for Europe is currently also hovering in record low territory, Puchalla adds, as EMEA speculative-grade firms' solid aggregate liquidity profiles continue to be supported by issuer-friendly debt capital markets. The EMEA LSI came in at 8.6% in September, just above its all-time low of 8.4%, reached this past July.

Meanwhile, Moody's Covenant-Stress Indicator dropped to 2.4% in September from 2.8% in August, its lowest level since May 2015 and a sign that companies are at minimal risk of violating their financial maintenance covenants.

Moody's forecasts that the US speculative-grade default rate will fall to 2.3% in September next year from 3.3% today, and that the European speculative-grade default rate will fall to 2.4% in September 2018 from 1.3% today.

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