Continued pressure on the earnings and cash flow of energy companies caused Moody’s Liquidity Stress Index (LSI) to jump to 5.8% in September from 5.1% in August, the index’s highest level since October 2010 the New York City-based credit rating agency announced on Friday.
Specifically, the index’s energy component rose to 16.9% in September from 12.7% in August.
Twelve of the 23 liquidity downgrades in September were in the energy sector, Moody’s reports, with seven of them dropping to the lowest liquidity rating. These downgrades continue to be concentrated in the oilfield services and independent exploration and production (E&P) sectors, the credit rating agency notes
Excluding the energy sector, downgrades exceeded upgrades by 11 to seven, Moody’s says, adding that these moves were largely the result of company-specific factors. There were three downgrades in the retail sector, primarily due to competitive pressures; whereas upgrades ranged across sectors, including retail.
“Our key indices indicate that liquidity pressure outside of the energy sector remains modest for speculative-grade issuers,” says John Puchalla, a Moody’s senior vice president, in a statement. “However, the LSI’s rise warns that more companies are reliant on increasingly volatile capital markets to ease liquidity strains, which is increasing default pressure.”