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Moody's US Liquidity Stress Indicator edges up in September

Publication Date: 16 Oct 2018 - By ReachX Team By ReachX T.

Equity Fundamental Macro Equity USA


Rating agency Moody's Liquidity-Stress Indicator (LSI) rose to 3.3% in September from 3.2% in August, though remaining well below its long-term average and continuing to signal only modest default risk among US speculative-grade issuers over the next 12 months. 

The LSI falls when US corporate liquidity appears to improve and rises when it appears to weaken. In a note to clients, Moody's said September's increase was prompted by the downgrade of hospital operator CHS/Community Health Systems Inc.'s speculative-grade liquidity (SGL) rating to SGL-4.

John Puchalla, Senior Vice President at Moody’s, said: "September's increase raised the LSI to its highest level since July last year. But overall speculative-grade liquidity continues to be bolstered by a growing US economy, healthy corporate earnings and cash flows and continued investor demand for higher-yielding debt, giving issuers ready access to credit markets to fund acquisitions, capital expenditures and other growth investments, as well as to refinance upcoming maturities."

In September, upgraded of Moody's SGL ratings outnumbered downgrades, seven to two, Puchalla adds. 

Overall, six of the upgrades involved energy and mining companies, including four exploration and production firms that are benefiting from the recovery in oil prices. 

Conversely, CHS/Community Health Systems liquidity rating was lowered a notch following the announcement that the firm will pay $262 million to settle and resolve US DoJ investigations dating back to its 2014 purchase of Health Management Associates. Consumer products company Tempur Sealy International likewise saw its SGL rating downgraded last month.

Meanwhile, US speculative-grade issuers remain largely impervious to the risk of covenant violations. Although some liquidity rating downgrades continue to be linked to potential covenant violations, Moody's Covenant Stress Indicator continues to hover around historical lows because of good corporate earnings growth and widespread use of covenant lite structures. It finished September at 2.4%, on net unchanged from a year ago.


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