--Katherine Greene
The bond market’s hospitality toward companies with lower ratings is helping ease liquidity problems with speculative grade companies, according to analysts at Moody’s Investors Service. The number of debt-issuing companies with the most liquidity stress is the lowest since November 2007 at 7.7%, the 10th consecutive decline since stress peaked in March 2009. Moody’s monitors about one-third of speculative grade issuers for its liquidity stress index, and measures the index levels each month.
Refinancing debt in the bond market has increased cash on hand for many speculative-grade issuers, said analyst John Puchalla. “We’ve seen some companies that were very highly levered and deeply speculative grade that were shut out, and they’re getting access now,” he said.
It’s a trend Moody’s has been watching since Spring 2009, Puchalla said. Low treasury rates have pushed yield-seeking investors into the lower-rated names they might otherwise have considered too high-risk. And signs the economy is improving help those investors feel more comfortable about where they’ve chosen to place their money, he said.
Still, he cautioned, the bond market’s grand opening over the past few months isn’t necessarily a permanent development. The bond market may re-freeze as it hits the maturity wall over the next three or four years approaches, he said. “If that were to shut down, liquidity problems could start to pile up. So that’s what we’re watching for,” he said.