Moody's Liquidity-Stress Index down again in April; liquidity checks defaults among spec-grade companies

Moody's Liquidity-Stress Index (LSI) dipped to its lowest level since July 2015 last month, the rating agency says in its most recent edition of SGL Monitor Flash. The index declined to 4.9% in April from 5.3% in March, with liquidity conditions remaining fundamentally supportive for issuers across the speculative-grade rating spectrum.

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

"Speculative-grade liquidity continues to keep defaults in check, with a growing economy boosting profits and a lack of meaningful maturity and covenant concerns over the next year," said Senior Vice President John Puchalla. "Speculative-grade bond and loan issuance slowed in April, but remained at levels healthy enough to give most companies the flexibility to resolve liquidity issues."

 

Last month, upgrades of Moody's speculative-grade liquidity (SGL) ratings continued to outnumber downgrades by nine to four, Puchalla says. SGL rating movements were dispersed across industries, with just one energy firm upgraded: Exploration and production company SM Energy Co.'s liquidity rating was raised to SGL-1 following asset sales and a shift in spending that should lower its break-even costs.

Also in April, the SGL rating of Hospital operator Quorum Health Corp. was upgraded on the back of a covenant amendment and planned divestitures, while electronic component supplier KEMET Corp. saw its rating raised upon issuance of a new term loan and the refinancing of senior notes due 2018. Conversely, the SGL rating of apparel company Vince LLC was downgraded to SGL-4 on weak operating performance that will pressure its covenant compliance over the next 12 to 18 months.

Moody's forecasts that the US speculative-grade default rate will decline to 3.0% in March 2018 from a 4.7% level today that matches the long-term average.

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