Moody's: Liquidity-Stress Indicator slips back to record-low in mid-March

Moody's Liquidity-Stress Indictor (LSI) declined again in the first two weeks of March, after rising for the first time in a year in January, the rating agency says in its most recent edition of SGL Monitor. The indicator slipped back to its record-low of 2.5% in mid-March from 2.7% in February, owing to the upgrade of General Nutrition Centers, Inc.'s liquidity rating.

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

"The LSI has moved in a narrow range over the last six months amid modest rating activity," said John Puchalla, Senior Vice President at Moody's. "Overall, the US speculative-grade liquidity picture remains sound, with corporate earnings benefiting from a growing economy, while issuers also maintain good credit market access and covenant flexibility despite recent spread widening."

So far in March upgrades of Moody's speculative-grade liquidity (SGL) ratings have outpaced downgrades, five to four, adds Puchalla. General Nutrition Center's SGL rating was raised two notches to SGL-2 following a refinancing, while all four downgrades were to the un-worrisome SGL-2 level, with two related to funding for growth. In addition, iHeartCommunications, Inc., the largest radio station in the US and by far the largest SGL-4 rated issuer, filed for bankruptcy.

Meanwhile, Moody's Covenant-Stress Indicator edged up to 2.4% in February from 2.3% in December, though it remains well below its long-term average of 5.5%, reflecting the widespread prevalence of covenant-lite structures.

Liquidity strains and default risk will remain low this year, Moody's says. Amid a favorable economic backdrop, the rating agency projects that the US speculative-grade default rate will fall to 2.0% in February next year, from 3.6% today.

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