For the seventh month in a row Moody’s Liquidity-Stress Index (LSI) fell in November, indicating that corporate liquidity has improved. Yet while modest economic gains have served to reduce corporate liquidity difficulties, the majority of the index’s improvement has successful refinancing in a low-yield environment and default-related ratings withdrawals to thank.
The LSI, which rises when corporate liquidity weakens and falls when it strengthens, dropped to 6% in November from 6.6% in October, according to Senior Vice President John Puchalla. “Notably, the index's shift to its lowest level since September 2015 marks a significant retreat from the most recent peak of 10.3% in March 2016, and points to moderating default risk," he said.
The ratings firm’s forecast for the one-year U.S. spec-grade default rate is for it to fall even more next year to 4.1% by October 2017, Moody’s said.
Further, speculative-grade liquidity (SGL) ratings for 10 companies decreased in November, marking the end to a five-month trend that saw upgrades leading to downgrades, analysts said. “The impetus for the downgrades during the month—all by one notch—reflected a variety of reasons, including earnings pressure and maturities,” Puchalla said. The downgraded companies included firms from the health care, communications and manufacturing sectors.
– Nicholas Stern, associate editor