Non-US ABS Ratings Slightly Lower Than Rivals
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By Tom Marshall
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Moody's Investors Service's tends to rate non-U.S. structured finance deals slightly lower than its rivals Standard & Poor's Corp. and Fitch Ratings, according to a study released by Moody's Monday.
Mostly the differences are small. Of those deals covered by more than one rating agency, the average difference between Moody's ratings and those of its rivals is less than one notch. For triple-A rated borrowers, the other agencies concur with Moody's 98% of the time.
But the gap increases further down the rating spectrum. With lower-rated credits, other agencies only agree with Moody's 47% in Fitch's case and 58% in S&P's. In particular, Moody's tends to rate high-yield credits between 0.28 and 0.56 notches lower. Of all credits below triple-A, between 27% and 38% were rated lower by Moody's.
On average, Moody's ratings were 0.09 notches lower than those of S&P and 0.24 notches lower than Fitch's.
The Moody's study covers deals from Europe, the Middle East, Africa, Asia-Pacific and Latin America. Its conclusions are broadly similar to those of a recent study from the same agency comparing ratings of U.S. deals.
Moody's said differences in its rating approach are behind the differences in ratings - in particular its greater focus on expected loss if a default happens, rather than on the simple probability of default.
"Since loss given default is usually significantly higher on junior tranches...the rating gap effect becomes more pronounced at lower rating levels than for Aaa-rated credits," said Detlef Scholz, group managing director at Moody's, referring to the lower-rated tranches of securitizations. These are backed by thinner slices of the underlying portfolio of assets and so suffer more quickly if things start to go wrong.
Differences between the rating agencies vary somewhat between different kinds of securitization. Residential mortgage-backed securities, or RMBS, show less difference between Moody's and its rivals than the broader ABS market. On average Moody's rates these deals outside the U.S. around a tenth of a notch lower than S&P or Fitch.
Commercial mortgage-backed securities, or CMBS, show more of a differential. Moody's on average rates tranches a quarter of a notch lower than S&P and 0.15 of a notch lower than Fitch.
In the rest of the market, including securitizations of assets like credit card debts or whole businesses, the picture is a little different. Moody's ratings are on average 0.11 higher lower than S&P's, though they are 0.21 notches lower than Fitch's.
In ratings of collateralized debt obligations, or CDOs, Moody's said its ratings are on average just 0.04 notches below S&P but are 0.68 notches below Fitch.
A representative of S&P declined to comment on the Moody's study. A Fitch spokesman said the Moody's study agrees in several respects with some research from Fitch released in May 2006. This also covered structured finance ratings outside the U.S.
While this study found the differences tend to be small, with more than 95% of Fitch ratings shared with S&P and Moody's either the same as the rival's or within a single notch, this study concluded S&P's ratings were on average slightly higher than Fitch's, at 0.01 notches more. However, Moody's ratings were slightly lower, at 0.24 notches less.
The Moody's study was based on a database of 42,000 tranches rated by both Moody's and S&P in February 2006, and 23,000 tranches rated by both Moody's and Fitch at the same point in time.
Moody's Web site: moodys.com.
-By Tom Marshall, Dow Jones Newswires; 44 207 842 9315; thomas.marshall@dowjones.com |
