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.