Spec-Grade Liquidity Worsens

Speculative-grade liquidity has worsened this summer for the first time in 15 months, according to a report published by Moody’s Investors Service.

“The increase in the past six weeks suggests that a long period of improving liquidity for spec-grade companies may be drawing to a close.”

John Puchalla


The liquidity stress index rose to 5.5% in mid-July from 5% in June and 4.8% in May, after 15 months of declines, Moody’s report.

“The increase in the past six weeks suggests that a long period of improving liquidity for spec-grade companies may be drawing to a close amid a tentative U.S. recovery, high unemployment and persistent concerns over sovereign debt in Europe,” John Puchalla, Moody’s vice president and senior credit officer, says in a statement.

The rating agency says that the increase in the stress index could be a warning that speculative-grade corporate liquidity remains dependent on continued access to credit markets, and billions of dollars of high yield debt maturing over the next several years could put pressure on default rates if the economy remains volatile and credit markets are unwelcoming.

Moody’s says that U.S. speculative-rated companies have about $800 billion in loans and bonds maturing between now and 2014.

Overall, there were four downgrades to SGL-4 in June and another five through mid-July, Moody’s says.

However, although the index is rising, it remains below its 8.4% historical average since Moody’s first assigned SGL ratings in 2002, Puchalla notes.

The last time the index started to move up markedly was in June 2007, just before the credit crisis, and it peaked at 21% in March 2009.

Moody’s proprietary index takes the total number of companies rated SGL-4, the lowest liquidity rating on a scale of 1 to 4, and divides it by the number of companies that have SGL ratings. Thus, the more SGL-4-rated companies there are each month, the higher the liquidity-stress index.

The report, “U.S. Speculative-Grade Liquidity Worsens for the First Time in 15 Months,” is available on Moody’s web site, www.moodys.com.

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