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[CPDO rating error] Moody’s on ratings watch negative

After close of markets New York time, Standard & Poor’s put Moody’s short term debt on credit watch negative:

NEW YORK (Standard & Poor’s) May 22, 2008–Standard & Poor’s Ratings Services today placed its ‘A-1′ commercial paper rating for Moody’s Corp. on CreditWatch with negative implications.

The CreditWatch listing reflects recent press reports regarding potential problems with analytical models and methodologies used in Moody’s process for rating European constant-proportion debt obligations (CPDOs). Moody’s announced yesterday it had retained the law firm Sullivan & Cromwell and initiated an external review of their European CPDO ratings process. While the specific potential business and financial impact to Moody’s is currently uncertain, this comes at a time when expected declines in revenue and cash
flow at Moody’s in 2008 are expected to meaningfully reduce flexibility in the company’s leverage profile. These concerns are exacerbated by the potential impact of the previously mentioned press reports.

We will monitor any related developments, and will incorporate the outcome of the company’s external review into our considerations in resolving this CreditWatch listing, though we could take a rating action prior to the completion of the review if events warrant it. We are not concerned about Moody’s current liquidity position, given cash and short-term investments of $350 million at March 2008 and the company’s $1 billion revolving credit facility, which provides back-up for its $1 billion commercial paper program.

And via Bloomberg, Moody’s response:

It’s unfortunate that we have been put on negative watch, but we are pleased that S&P confirmed our liquidity position.

Article Series - CPDO rating error

  1. FT Alphaville exclusive: Moody’s error gave top ratings to debt products
  2. Moody's statement to the FT
  3. A CPDO rating explainer
  4. CPDOs' triple A failure
  5. Buffett doesn't blink
  6. US senator Schumer's letter to Cox
  7. Moody's Confirms External Review of European CPDO Rating Process (Statement)
  8. Moody's on ratings watch negative
  9. Moody's CEO makes statement
  10. Moody's hopes to put CPDO errors behind it
  11. Cox responds to Schumer
  12. S&P admits modelling flaw
  13. Moody's ousts structured finance head, admits breaches to code of conduct

This entry was posted by Sam Jones on Friday, May 23rd, 2008 at 10:41 and is filed under Capital markets. Tagged with , . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. May 23   18:34 Posted by Integrity Research» Blog Archive » A bug in the Moody’s black box? [report]

    […] New York - Earlier this week, the FT reported the disturbing news that “Moody’s awarded incorrect triple A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models”. Even worse, investors and clients were not informed when the error was discovered, and the code was corrected simultaneously with a methodological change. To say that this is an embarrassment is an understatement. Moody’s shares have fallen by nearly a quarter since the news broke, and certain legislators, smelling blood in the water, have begun to circle around this case. Ironically enough, S&P has placed Moody’s on ratings watch negative, and it’s possible that we will see lawsuits and regulatory action. […]

  2. May 23   12:17 Posted by Carlomagno [report]

    From the you-can’t-make-up-this-stuff department:

    LONDON (MarketWatch) — Rating agencies Moody’s Investors Service and Fitch Ratings have switched analysts assigned to rate bonds after getting requests to do so from bond issuers or their bankers, according to a report in The Wall Street Journal Friday. The switches appear to be infrequent and were for reasons including not returning a banker’s phone call or missing deadlines, the newspaper reported. It added the practice could spur more questions about whether bond issuers have too much influence over how their bonds are rated. Moody’s Investors Service is part of Moody’s Corp. and Fitch Ratings is owned by Fimalac.

    http://tinyurl.com/3sxo8p

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