Junk bond stress at 9-month low in August -Moody's

NEW YORK, Sept 2 (Reuters) - An indicator measuring stress in the junk bond market fell to a nine-month low in August, indicating that access to credit markets is improving, Moody's Investors Service said on Wednesday.

Moody's Liquidity-Stress Index for speculative grade, or junk, bonds fell to 15.2 percent in August from 16 percent in July.

The stress index measures the number of companies that carry the credit rating agency's lowest liquidity rating of SGL-4.

When a company's liquidity position improves enough for an upgrade from the lowest category, it puts downward pressure on the index.

The number of SGL-4 issuers fell to 78 in August from 82 in July, down 26 percent from all all-time high of 106 at end March.

"Five consecutive monthly declines (in the liquidity-stress index) from the high of 20.9 percent in March indicate firmly that the speculative-grade default rate should peak within six to eight months," said Moody's Managing Director Tom Marshella.

That is broadly in line with Moody's forecast for default rates to top out in November, he said.

SGL upgrades outnumbered downgrades by nine to six in August, as companies succeeded in refinancing or paying back maturing debt.

Since May, there have been 43 SGL upgrades and 21 downgrades.

Smithfield Foods Inc's (SFD.N) liquidity rating rose to SGL-3 from SGL-4 after it replaced a revolving credit agreement with a $1 billion asset-backed facility and added $225 million to its outstanding $625 million of senior secured notes.

Great Atlantic Pacific Tea Co (GAP.N) rose to SGL-2 from SGL-3 after it issued debt and equity.

TRW Automotive (TRW.N) rose to SGL-3 from SGL-4 after it issued equity and used some of the proceeds to reduce long-term debt.

L-3 Communications Holdings Inc (LLL.N) was cut to SGL-3 from SGL-2 because of the short remaining term of its $1 billion revolving credit facility that expires in March 2010.

"The remaining SGL downgrades were triggered by tight room under covenants over the next four quarters," said Marshella. (Reporting by Ciara Linnane; Editing by Leslie Adler)