More than a year after Moody's Investor Service announced that it was postponing the recalibration of its U.S. municipal rating scale amid the financial crisis, the agency may be close to announcing its plans to move forward on the changes once again.
Michael Adler, a Moody's spokesman, said yesterday that the agency intends as early as next month to provide an update on its plans to recalibrate its rating scale for muni securities to a single scale.
"We expect to provide guidance on the status of our migration process in the first quarter of next year," he said.
Moody's, along with Fitch Ratings, last year committed to implementing a uniform scale, but then postponed those efforts last October, citing the unsettled financial markets. Standard & Poor's maintains that it already uses a uniform scale.
Gail Sussman, Moody's group managing director for U.S. public finance, said in a statement at the time: "While Moody's remains committed to ensuring that our U.S. public finance ratings are comparable to ratings in other sectors, we are sensitive to introducing a recalibration in the midst of current credit market turmoil."
The news that Moody's would provide a status update next year — its first since halting the recalibration — comes as financial regulatory reform legislation cleared the House last week that would require rating agencies registered as nationally recognized statistical rating organizations to rate securities on the likelihood of loss to investors and apply ratings consistently across all asset classes.
The stated aim of the language is to effectively require a global, or uniform, rating scale for the ratings of governmental debt. However, the legislation includes language that may muddle such efforts by prohibiting the Securities and Exchange Commission, which regulates the NRSROs, from adopting rules that bar the rating agencies from considering credit factors "that are unique to municipal securities" or establishing "complementary" ratings to measure a "discrete aspect of the security's or instrument's risk."
Moody's officials said yesterday that their status update is not an attempt to get ahead of any congressional action, adding that while the agency has committed to an eventual recalibration, it has not yet decided what the update will say or when the migration will occur.
Though the news that Moody's might move forward with its migration to a uniform scale is supported by issuers, they complain that it has taken the rating agencies too long to fix what they contend is a deeply unfair system.
Natalie Brill, chief of debt management for Los Angeles, said she does not understand why the rating agencies ever postponed their recalibration, because the dual scales confuse investors and hurt municipalities. She said the existing system does not take into account the fact that municipalities have less chance of going bankrupt than a corporation going out of business, yet municipalities are often rated lower than corporations.
Asked about Moody's update, Richard Raphael, executive managing director and head of U.S. public finance for Fitch, said: "While the economy is stabilizing and we continue to review the municipal rating framework, Fitch is cognizant of the fact that pressure on municipalities' financial condition will persist."
