Corporate liquidity stabilized in August, Moody’s Investors Services announced Tuesday.
“Moody’s Liquidity-Stress Indicator (LSI) was unchanged at 3.2% in August after rising from a record low of 2.5% in April to an 11-month high in July,” the credit rating agency says in a news release..
The indicator rises when corporate liquidity appears to weaken and declines when liquidity improves.
Despite the recent rise, the LSI remains “well below its long-term average,” Moody’s says.
“A growing U.S. economy, healthy corporate earnings and cash flow, and accommodating credit markets continue to support speculative-grade companies’ overall good liquidity,” says John Puchalla, senior vice president at Moody’s, in a statement.
“That said, aggressive debt structuring, spurred by investors’ continuing hunt for yield, is paving the way for lower loan recoveries during the next downturn, though at this stage our risk indicators still point to a benign default environment.”
Downgrades of speculative-grade liquidity (SGL) ratings slightly outnumbered upgrades in August.
“Half of the downgrades involved energy companies for reasons including more upbeat industry conditions that have led to higher investment spending,” Moody’s says. “Conversely, earnings and cash flow gains contributed to August’s SGL rating upgrades, among them two energy companies.”