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Access to liquidity will grow increasingly important to struggling companies as the fallout from the Covid-19 pandemic drags on, says Moody’s Investors Service.

“Liquidity availability will play an increasingly pivotal role for speculative-grade company performance,” the rating agency said in a report.

It will also be critical to the default and recovery cycle, Moody’s said.

The report forecast the default rate for the U.S. will be 10.5% a year from now. The rate for Europe, the Middle East and Africa (EMEA) will reach 6.2%, and “debt recoveries will be lower for both regions than during prior recessions,” the report said.

Weak issuers with eroding liquidity “will push defaults even higher in 2021,” Moody’s said.

“Liquidity for weak issuers will continue to erode as both regions struggle with declining earnings and rising debt,” it noted.

Ultimately, the report said that private equity will step in to make acquisitions of distressed firms on the cheap.

Moody’s said that U.S. and European private equity firms have “ample liquidity, with close to $1.3 trillion in deployable capital,” but the rating agency expects them to keep their powder dry for future opportunities — “a trend we have seen in previous recessions.”

Once corporate performance starts to stabilize, “private equity firms will also look to include add-on acquisitions executed at lower multiples,” it said.

“Public companies are also likely to consider M&A transactions that could provide synergies and earnings as the economy struggles to find its footing,” the report noted. “This would strengthen surviving companies.”