Moody's Liquidity-Stress Index falls when corporate liquidity appears to improve and rises when it appears to weaken.

"Companies have generally been able to resolve liquidity issues before they become too severe," says Vice President -- Senior Credit Officer John Puchalla. "But a number of factors could reduce corporate revenues and access to credit, including contagion from the European debt crisis, continued slow global economic growth and the combination of US tax increases and spending cuts due to begin in the US in January."

November's low LSI is consistent with Moody's expectation that the US speculative-grade default rate will decline over the coming year, then inch up to 3.0% in October 2013.

Liquidity rating downgrades among speculative-grade companies (6) have outpaced upgrades (5) so far in November, with the uptick in the LSI reflecting the downgrade of API Technologies and Cengage Learning due to anticipated lower earnings and tighter covenants at those companies.

While the shift is not dramatic, the liquidity of new issuers has weakened in recent months owing in part to weaker internal resources, Puchalla says. "Recent very strong high-yield bond issuance might be attracting companies with more questionable cash-flow profiles, which could spell trouble down the road as these companies begin to season."

The average speculative-grade liquidity ratings for companies that were assigned them over the past two months were up over the prior six months, and were the weakest readings since December 2011.

Moody's Covenant-Stress Index held steady at 2.2% in October, unchanged from September. The index measures the extent to which speculative-grade companies are at risk of violating debt covenants, and declines when headroom under covenants appears to increase. October's low reading suggests that the vast majority of speculative-grade companies continue to have adequate cushion under their covenants.

Moody's research subscribers can access this report at http://www.moodys.com/research/SGL-Monitor-Moodys-Liquidity-Stress-Index-Rises-to-40--PBC_147400.

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John E. Puchalla VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Tom Marshella MD-US and Amer Corporate Fin Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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