Speculative-grade corporate liquidity continued to improve through mid-June, but not necessarily due to recovering cash positions.

Moody’s Investors Service on Monday issued a report showing improvement in its Liquidity Stress Index, a measure of the corporate liquidity positions of its rated universe of spec-grade companies (whose syndicated loans provide assets for the collateralized loan obligation securitization market).

The LSI moved to 8.8% from 9.3% at the end of May, following a decline from 10.2% in April. A lower LSI indicates improving liquidity conditions, and is usually the result of a reduction in the number of companies with the weakest speculative-grade liquidity (SGL) rating of “SGL-4” on a 1-4 scale (with 1 indicating strong liquidity).

According to Moody’s, the LSI fell in May and June as a number of bankruptcies removed companies from its “SGL-4” count, including the June bankruptcy filing of Warren Resources. Three issuers were upgraded from “SGL-4” – although, again, were “due more to underlying problems than fundamental improvement,” noted Moody’s.  Southcross Energy Partners, for instance, was upgraded to “SGL-3” because of the suspension of cash distributions after parent Southcross Holdings emerged from Chapter 13 bankruptcy in April.

Moody’s still forecasts a climb in the U.S. default rate to 6.5% next January, from 5% in May.

“At the same time, issuers have been better able to address financial needs as credit markets rally back to life – a dramatic shift from the start of the year,” the report stated. Moody’s noted that oil field services firm Weatherford International was able to refinance existing debt due to the more favorable borrowing conditions that oil and gas firms are finding with rising fuel prices.

New leveraged-loan issuance is a “robust” $21 billion so far in June, the report stated.

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