Liquidity concerns appear to be easing for companies in Canada and the U.S., according to Moody’s Investors Service.
The rating agency reports that its liquidity-stress index is on pace to decline for the second consecutive month. The index’s mid-February reading of 4.0% puts the index at a six-month low, it says.
“The declining liquidity-stress index for the U.S. and Canada reflects both a decrease in the number of companies with the lowest [rating] as well as the favorable effects of modest economic growth and improved credit market conditions,” said John Puchalla, Moody’s vice president, senior credit officer. “Companies are still able to proactively address liquidity issues.”
That said, speculative-grade liquidity rating downgrades continue to outnumber upgrades, Moody’s says. Although it notes that the gap is small and the rate of downgrades is lower than in the second half of 2011.
Additionally, Moody’s covenant stress index, which measures the extent to which speculative-grade companies are likely to default or have already defaulted on covenants, also appeared to decline during the first half of February, it says. Moody’s says the index’s reading of 2.8%, down from 2.9% at the end of January, indicates that covenant headroom remains manageable for most companies. While the reading is above the near-record low of 1.8% posted in July and August 2011, it is far below the March 2009 record high of 17.3%.