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US corporate liquidity stress highest since 2009: Moody's

[NEW YORK] US companies, particularly those in the energy sector hit by tumbling oil prices, faced the toughest climate to get cash to run their business in more than six years, a report from Moody's Investors Service released late Monday showed.

The rating agency said its "Liquidity-Stress Index" jumped to 7.9 per cent in January from 6.8 per cent in December 2015, the highest since December 2009 and the biggest one-month gain since March 2009.

Reduced issuance of high-yield bonds and growing risk premiums investors demand on them propelled the index higher last month, Moody's said. "Operating weakness and maturities coming due in early 2017 are straining the liquidity of companies of some low-rated companies," said John Puchalla, a Moody's Senior Vice President in a statement.

Moody's liquidity index on oil and gas companies increased to 21.4 per cent in January from 19.6 per cent in December, which is not far below its 24.5 per cent recessionary peak in March 2009.

Increasing struggle for companies with junk ratings to raise cash portends more defaults, it added "As borrowing rates rise and credit markets tighten, companies closer to the margin will find it challenging to cost-effectively refinance their upcoming debt maturities." Moody's projected the default rate on US junk bonds would climb to 4.4 per cent in December this year from 3.2 per cent in December 2015.

Liquidity stress was also felt outside the energy sector.

Moody's said its non-oil and gas sector liquidity stress index rose to 4.5 per cent in January, which was the highest since November 2010 and up from 3.6 per cent in December.