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February 3, 2009

Wikipedia: Moody’s

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Moody’s Corporation
Type Public (NYSE: MCO)
Founded New York City (1909)
Headquarters New York City
Revenue US$2.04 billion (2006)
Operating income US$1.26 billion (2006)
Net income US$754 million (2006)
Website www.moodys.com

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 also ranks the credit-worthiness of borrowers using a standardized ratings scale. The company has a 40% share in the world credit rating market.

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

Contents

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.”[1]
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…”[1]
Ca
Obligations rated Ca are highly speculative and are “usually in default on their deposit obligations”.[1]
C
Obligations rated C are the lowest rated class of bonds and are typically in default, and “potential recovery values are low”.[1]
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 bonds. 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.[1] 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”[1]
E
” very modest intrinsic financial strength, with a higher likelihood of periodic outside support”[1]

Criticism

See also: Credit rating agency#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.[2]

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. [3]

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

References

  1. ^ a b c d e f g h i j k l Moodys. Rating Definitions Requires free registration. Retrieved 2008-10-06
  2. ^ Tomlinson, Richard; Evans, David (2007-06-01), “CDOs mask huge subprime losses, abetted by credit rating agencies”, International Herald Tribune, http://www.iht.com/articles/2007/05/31/bloomberg/bxinvest.php 
  3. ^ Credit Raters’ Power Leads to Abuses, Some Borrowers Say

See also

  • Standard & Poor’s
  • Fitch Ratings
  • A. M. Best
  • Dominion Bond Rating Service
  • Nationally Recognized Statistical Rating Organizations
  • Reuters
  • Bloomberg L.P.
  • Morningstar, Inc.

External links

  • Moody’s
  • Credit Raters Exert International Influence (washingtonpost.com)
  • The history of Moody’s
  • Country Ratings
  • RSS Feed of Most Recent Moody’s Ratings Changes
  • Officers
This text comes from Wikipedia. Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation; with no Invariant Sections, no Front-Cover Texts, and no Back-Cover Texts. For a complete list of contributors for this article, visit the corresponding history entry on Wikipedia.

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