Corporate liquidity was flowing in relative abundance in May, as indicated by Moody’s Liquidity-Stress Index (LSI), which fell to its lowest level since April 2015. The speculative-grade liquidity ratings of five companies were either upgraded or withdrawn, and resulted in the LSI decreasing to 4.2% from 4.9% in April and a long-term average of 6.8%.
"Energy company earnings, though still weak, continue to recover from the slump in oil prices, as do energy-related industries such as fracking sand suppliers," said Moody’s Senior Vice President John Puchalla. "More broadly, rising corporate earnings, a proliferation of covenant-lite loans, modest maturities and accommodative credit markets all support improving and benign liquidity for speculative-grade borrowers."
The retail sector is seeing a concentration of problems, particularly among department stores and specialty and apparel outlets, Moody’s said. The ratings agency anticipates that the U.S. speculative-grade default rate will drop to 3% in April 2018 from the current rate of 4.5%.
Meanwhile, the default forecast for the U.S. speculative-grade retail sector is 6.7%, the second highest among the spec-grade industry groups.
– Nicholas Stern, senior editor