Credit Raters' Degrees of Separation Affect Bonds and Bond Insurers.

   The three major credit raters in the United States have responded to concerns recently expressed by State and Local Governments issuing so-called Municipal Bonds.  The credit raters have each responded differently to concerns that Municipal Bonds are set on an inferior footing.

   Municipal Bond issuers are concerned that, compared to Corporate Bonds, the two-tiered rating system invented by the raters favors Corporations over local and State Governments.   That double-rating system has been in use for the better part of not much more than 30 years, if that.  (See many recent previous posts on the Issues in this space addressing "Bond Insurance" and "Market Performance".)

    Moody's Investor's Service:  1 of the 3 Credit Raters Announces a Plan.

Moody's Investor's Service has responded to these concerns by announcing  an ambiguous program with these features:

1. It has surfaced a plan to provide State and Local Governments an option to obtain "a so-called global rating," which would be based on the same factors that are used to rate Corporate Bonds, for Government-issued "tax-exempt bonds".  This would give State and Local Governments a second Moody's rating in addition to Moody's rating of Munis under the current rating system, which Moody's would keep unchanged.
2. Moody's has not taken a position whether it will try to charge State and Local Governments to obtain the global rating option it has surfaced.  However, past experience with Moody's Municipal Bond ratings reportedly shows the following.   In October, 2007, the State of California issued $250,000,000.00 in Bonds to fund stem-cell research.  California reportedly paid $46,200.00 to Moody's to obtain the existing type of "municipal scale rating".  California also paid an additional $25,000.00 to Moody's for the global scale rating.  It is unclear what for, but California also reportedly agreed to pay $6,250.00 "a year for the life of the bond".  Moody's rated these same California Bonds A1 under the existing credit rating system, and AAA on the global scale, i.e., on the same scale using the same criteria as are used to rate the credit of Corporate Bonds.
3. The global rating option would not be automatic; issuers of Municipal Bonds would have to ask for it.
4. Two sets of ratings for Municipal Bonds would be good for issuers of Municipal Bonds, Moody's said in a statement, at the same time that Moody's asked for comment on whether two sets of ratings would be good for issuers of Municipal Bonds.

Fitch Ratings Issues a "Yatta Yatta Yatta" Statement.

Fitch Ratings is another one of the three credit rating corporations in question.  Fitch issued what might be called a yatta yatta yatta statement, or much wind signifying nothing much.  Fitch used the word "'harmonization'" in its reported statement, but it is not clear what Fitch meant.

Standard & Poors is in Denial.

Standard & Poor's ("S&P") says it has only one set of standards.  This would not appear to reflect recognition of a two-tiered system for rating the credit of Municipal Bonds and Corporate Bonds.

   These developments are reported by Vikas Bajaj, Moody's Weighs Changes to Its Municipal Ratings" p.C6, col. 1 "Business Day" Section  (New York Times Nat'l Ed., Friday, March 21, 2008); Jeremy R. Cooke & Michael B. Marois, "Moody's, Fitch Weigh Muni Rating Shift on Pressure From States" (Bloomberg.com, Friday, March 21, 2008).

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