Moody's

From Riski

Jump to: navigation, search

Moody's Corporation (NYSE:MCO) is the holding company for Moody's Investors Service which performs financial research and analysis on commercial and government entities. The company is designated as an Nationally Recognized Statistical Rating Organization (NRSRO) by the United States Securities and Exchange Commission.

Moody's was founded in 1909 by John Moody. Top institutional owners of Moody's include Berkshire Hathaway and Davis Selected Advisers.

See also credit rating agencies.

Contents

Business Overview

Moody's Investors Service is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis. Moody’s commitment and expertise contribute to stable, transparent and integrated financial markets, protecting the integrity of credit. In addition to our core ratings business, Moody’s provides research data and analytic tools for assessing credit risk, and publishes market-leading credit opinions, deal research and commentary, serving more than 9,300 customer accounts at some 2,400 institutions around the globe.

Moody's ratings

Long-term obligation ratings

Moody's long-term obligation ratings are opinions of the relative credit risk of fixed-income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings reflect both the likelihood of default and the probability of a financial loss suffered in the event of default.

Investment grade
Aaa
Obligations rated Aaa are judged to be of the highest quality, with the "smallest degree of risk".[1]
Aa1, Aa2, Aa3
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk, but "their susceptibility to long-term risks appears somewhat greater".[1]
A1, A2, A3
Obligations rated A are considered upper-medium grade and are subject to low credit risk, but that have elements "present that suggest a susceptibility to impairment over the long term".[1]
Baa1, Baa2, Baa3
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such "protective elements may be lacking or may be characteristically unreliable".[1]
Speculative grade (Also known as High Yield or 'Junk')
Ba1, Ba2, Ba3
Obligations rated Ba are judged to have "questionable credit quality."[1]
B1, B2, B3
Obligations rated B are considered speculative and are subject to high credit risk, and have "generally poor credit quality."
Caa1, Caa2, Caa3
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk, and have "extremely poor credit quality. Such banks may be in default..."
Ca
Obligations rated Ca are highly speculative and are "usually in default on their deposit obligations".
C
Obligations rated C are the lowest rated class of bonds and are typically in default, and "potential recovery values are low".
Special
WR
Withdrawn Rating
NR
Not Rated
P
Provisional

Short-term taxable ratings

Moody's short-term ratings for taxable securities are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.

Moody's employs the following designations to indicate the relative repayment ability of rated issuers:

P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt for the obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
  • Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its guarantor or support-provider.

Short-term tax-exempt ratings

Unlike S&P, Moody's has separate categories for short term municipal securities. The ratings categories largely overlap, though, and have the same implications for the ability to repay short-term obligations.

Individual bank ratings

Moody's also rates each bank's financial strength. Rating Definitions Requires free registration. These ratings differ from deposit ratings in that they measure how likely the bank is to need assistance from third partys.

A
"superior intrinsic financial strength"
B
"strong intrinsic financial strength"
C
"adequate intrinsic financial strength"
D
"modest intrinsic financial strength, potentially requiring some outside support at times"
E
" very modest intrinsic financial strength, with a higher likelihood of periodic outside support"

Moody's proposes new money market rating scale

Moody's Investors Service said it is requesting market participants to comment on a proposed new methodology and rating scale for money market funds. The refined rating methodology, if implemented after a 60-day request-for-comment period, would recalibrate Moody's primary analytical inputs, such as a fund portfolio's underlying asset.

NRSRO registration

Default statistics

Criticism

Credit rating agencies such as Moody's have been subject to criticism in the wake of large losses in the asset backed security collateralized debt obligation (ABS CDO) market that occurred despite being assigned top ratings by the CRAs.

For instance, losses on $340.7 million worth of ABS collateralized debt obligations (CDO) issued by Credit Suisse Group added up to about $125 million, despite being rated Aaa by Moody's. [1]

Abusive business practices

Moody's has also been accused of "blackmail". In one example the German insurer Hannover Re was offered a "free rating" by Moody's. The insurer refused. Moody's continued with the "free ratings", but over time lowered its rating of the company. Still refusing Moody's services, Moody's lowered Hannover's debt to junk, and the company in just hours lost $175 million in market value. [2]


Moody's publicly reprimanded by SEC

The U.S. Securities and Exchange Commission said today that it decided not to pursue a fraud case against Moody’s Investors Service over the company’s ratings of collateralized-debt obligations in 2007.

The SEC released a report saying that even after discovering that some CDO ratings were incorrect, a Moody’s committee decided not to correct them, “in part because of concern that doing so would negatively impact” Moody’s reputation.

The SEC said it decided not to bring a fraud case against Moody’s because of jurisdictional “uncertainties.”

Moody's floats $500M bond offering

Moody's Corp., having spent the past century passing judgment on others' credit quality, got a taste of the other side.

The credit-ratings firm sold bonds for the first time—taking advantage of soaring demand for corporate debt and historically low rates—in an offer Monday that was met by mixed reviews.

Moody's raised $500 million in the sale, $100 million more than planned, but was forced to pay a higher rate of interest than issuers with similar ratings.

Ironically, investors said that was in part because Moody's is rated by just one firm—Standard & Poor's. Most other companies have at least two ratings, and many investors can buy only securities that carry two ratings from either S&P, Moody's or Fitch Ratings.

"Because it's Moody's, it is not rated by Moody's and that affects whether some investors' guidelines will permit it," said Russell Brown, portfolio manager at Silvercrest Asset Management. "Some places say you have to be rated by two of the three."

S&P gave the Moody's bonds a triple-B-plus rating, three levels above noninvestment grade. Fitch doesn't rate Moody's. A Fitch spokesman declined to comment other than to say it has never rated Moody's, and Moody's declined to comment.

Moody's paid three percentage points above comparable U.S. Treasurys for the 10-year notes, for an all-in yield of 5.582%. The premium, or spread, compares with the going rate of about 2.40 percentage points paid by companies with similar ratings for a similar length of time, based on Bank of America Merrill Lynch indexes.

Corning Inc., also rated triple-B-plus, sold 10-year notes this month at 1.45 percentage points above Treasurys, according to data provider Dealogic.

Moody's was also penalized because of the uncertainties facing the credit-rating industry in the aftermath of the credit crisis. Raters shouldered some of the blame for helping exacerbate the crisis because of their overly rosy views of mortgage debt. The raters have since come under regulatory scrutiny and the new laws passed by Congress last month also could significantly increase their liability for off-the-mark credit assessments.

"As far as what the role for ratings agencies will be going forward, there's more uncertainty now," Mr. Brown said.

Since being spun off from Dun & Bradstreet Corp. in September 2000, the publicly listed Moody's has raised debt financing through commercial paper and loans. According to data provider MarketAxess, it has no corporate bonds outstanding.

Moody's chose a compelling time to sell bonds. Companies now are raising money at some of the cheapest rates in history and money is flooding in to corporate bond funds.

Proceeds from the sale, led by Goldman Sachs Group and J.P. Morgan Chase, will be for general corporate purposes, including redemption and repayment of borrowings, working capital, acquisitions, investments in business or assets, or buybacks.

Moody's executive officers

  • Raymond W. McDaniel Jr. - Chairman and Chief Executive Officer
  • Linda S. Huber - Executive Vice President and Chief Financial Officer
  • John J. Goggins - Senior Vice President and General Counsel
  • Jay McCabe - Senior Vice President and Corporate Controller
  • Perry Rotella - Senior Vice President and Chief Information Officer
  • Officers

Competitors

References

  • Moody's
  • Moody's Analytics CM on Twitter: @MA_CapitalMkts


Personal tools