Turmoil in the energy industry has pushed corporate liquidity stress to its highest level in five years, according the latest version of Moody’s Investors Service Inc.’s liquidity stress index (LSI).
The New York-based credit-rating agency reports that the LSI rose to 4.8% in mid-August, up from 4.3% in July. The index rises when corporate liquidity appears to weaken and falls when it seems to improve.
Moody’s reports that the LSI reached a five-year high due to renewed pricing pressures in the energy sector as the oil and gas index jumped to 12.2% from 10.5% in July. In addition, the firm notes that energy companies comprise more than half (51.4%) of the issuers categorized as having the weakest liquidity, and four energy companies have been downgraded to the weakest level in the past month.
“Lower energy prices and a growing number of energy companies with low ratings and weak liquidity are pressuring the LSI and the U.S. speculative-grade default rate,” says John Puchalla, senior vice president at Moody’s.
“However, liquidity pressures are not widespread outside of energy as steady cash flows, the slowly improving economy and ready access to credit markets continue to provide fundamental support for U.S. speculative-grade company liquidity,” he adds.
Liquidity rating downgrades continue to outpace upgrades, Moody’s reports. It also notes that downgrades of energy companies dominated — and there were no upgrades in the energy sector this month.