BN 07/18 Moody's Shut Out of Rating Commercial Mortgage Bonds (Update1)
(Adds Fitch comments beginning in 17th paragraph.)
By Mark Pittman
July 18 (Bloomberg) -- Moody's Investors Service has been
excluded from rating 70 percent of new commercial mortgage-backed
securities after toughening its guidelines.
Moody's has been shut out of nine of the past 13 deals as
underwriters sought better ratings from rival companies, Tad
Philipp, a managing director at Moody's said today in a telephone
interview. The securities had a face value of more than $25 billion.
``There's no doubt in my mind that it's because of the
change'' said Philipp, who included a chapter titled ``Rating
Shopping is Alive and Well'' in a report released today.
``Normally, we'd rate 75 percent of the issues, not 30 percent. I
guess this is sort of like, no good deed goes unpunished.''
Moody's, which was criticized by investors for being too
slow to cut ratings on subprime residential bonds, in April
increased its requirements for the level of protection carried by
bonds backed by mortgages on apartment buildings, offices and
other commercial property. To get a high rating for some pieces
of the bond, Moody's now requires lower-rated pieces to be
larger, reducing losses further up the chain. The changes add to
the costs to create the securities.
The decision by Wall Street underwriters to snub Moody's
highlights the relationship between credit ratings companies, the
firms that pay for the ratings, and investors who rely on them to
make decisions. Moody's charges fees for its credit ratings.