Moody’s Adjusts Credit Analysis to Emphasise Liquidity Focus

Ratings agency Moody’s Investors Service said it has strengthened the focus of its rating analysis with regard to liquidity and generation of free cash flow, rating triggers and parent-subsidiary support structures. The firm said it was acting in anticipation of the potential for continued turbulence in Europe’s bond markets and closer public scrutiny of rating agencies following a number of high-profile corporate defaults. ‘Moody’s credit analysis of European corporates now places greater emphasis on liquidity and the generation of free cash flow than on earnings (as represented by EBITDA.) We believe that liquidity and free cash flow are better indicators of a company’s ability to meet financial obligations when facing a variety of unforeseen challenges,’ said Richard Stephan, Chief Credit Officer of Moody’s European Corporate Finance Group. He added that Moody’s ratings for European corporates will also reflect the risks posed by rating triggers found in bank and bond documentation.