Moody's Commercial Paper Rating May Be Cut, S&P Says (Update2)
By Alan Goldstein and Mark Pittman
May 22 (Bloomberg) -- Moody's Corp., owner of the second- largest credit-rating company, may have its commercial paper ranking cut by its bigger competitor Standard & Poor's.
S&P today placed Moody's A-1 short-term debt rating on CreditWatch negative, citing reports that a computer error may have caused Moody's to give Aaa ratings to debt that didn't deserve them.
Moody's shares tumbled 21 percent in the past two days after the New York-based company said it is probing whether executives covered up a computer error that gave undeserved top ratings to constant proportion debt obligations, funds that used borrowed money to bet on credit-default swaps. S&P analysts also awarded AAA ratings to the CPDOs.
In putting Moody's rating under review, S&P cited broader declines in revenue that have affected both companies since the collapse of the subprime home loan market sapped new issues of mortgage-backed bonds and collateralized debt obligations, which package pools of debt into new securities.
``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,'' S&P analysts led by Emile Courtney said in the report. ``These concerns are exacerbated by the potential impact of the previously mentioned press reports.''
Two Providers
S&P spokesman Christopher Atkins declined to comment. S&P analyst Courtney didn't immediately return phone calls.
``It's unfortunate that we have been put on negative watch, but we are pleased that S&P confirmed our liquidity position,'' Anthony Mirenda, a spokesman for Moody's, said.
S&P and Moody's are the two dominant providers of credit ratings. Moody's also rates S&P parent McGraw-Hill Cos., assigning its unsecured debt an A1 rating, the fifth-highest investment grade.
``They're starting to feed on each other,'' said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance Inc., which advises banks and hedge funds.
An A-1 rating on commercial paper, debt maturing in nine months or less, is the second highest at S&P. Moody's gives McGraw-Hill its highest short-term rating of P-1.
Moody's, which is 19.6 percent owned by Warren Buffett's Berkshire Hathaway Inc., fell $2.40, or 6.5 percent, to $34.51 in New York Stock Exchange trading after earlier sliding as much as 10 percent. The stock slumped 16 percent yesterday, the biggest decline since Aug. 20, 1999, and has dropped 49 percent in the past year.
McGraw-Hill dropped 24 cents to $40.94 today and was down 5.5 percent yesterday. The shares have tumbled 41 percent in the past year.
Moody's, which uses its commercial paper to finance stock buybacks, had cash and short-term investments of $350 million at March 2008 and a $1 billion revolving credit facility, S&P said. S&P didn't say how much Moody's has in commercial paper outstanding.
To contact the reporter on this story: Alan Goldstein in New York at agoldstein5@bloomberg.net; Mark Pittman in New York at mpittman@bloomberg.net
Last Updated: May 22, 2008 18:32 EDT |
