More CNC discussion between Herb Greenberg and another TSC/RealMoney columnist, Brian Reynolds. (emphases added by me)
Herb: From a Bloomberg story on Conseco. ``We don't expect them to move quickly but we're not borrowing much money right now,'' said Wendt. ``We hope to work with A.M. Best to show them the quality of what we've done and we expect to get the (investment-grade) rating back shortly.'' WORK with AM Best? Where's the independence? What does he mean by that? He's talking about getting Conseco's debt rating raised. How can he be so sure that the rating will be raised (as he suggested in the story)? And what about selective disclosure?
Brian: Herb, I'm no fan of Conseco, but all issuers "work" with the rating agencies to try to get the highest credit rating possible. Management usually makes an extraordinary amount of info available to the raters. The selective disclosure act even has an exception for the rating agencies. The ageencies, though, are pretty objective and don't usually fall for, or respond to, hype.
Herb: Brian, that's why the debt-rating agencies are sometimes the LAST to know! And it's why ratings increases should often be taken with a grain, but why ratings DECREASES should be taken seriously.
Brian: The agencies are indeed often a lagging indicator, and bond investors who do their homework can often make $ by anticipating up/downgrades. But, most fixed income investors don't question the objectivity of the agencies. When I started to do work on an unfamiliar company, I'd start with the agencies work because no one published more detailed info on a company. Equity investors often don't pay attention to credit ratings until it's too late.
Herb: Brian, couldn't agree with you more about equity investors not paying attention to bond analysis until it's too late. If you don't have enough money to cover your debts, no matter how much the Street may like you, you're doomed! |
