Rating Agencies

Indemnification Language Hasn’t Changed, Moody’s Spokesman Says

Moody’s Investors Service is not pushing municipal bond issuers to agree to indemnification language for ratings as a result of provisions in the new financial regulatory reform law that make it easier for investors to sue rating agencies, a spokesman for the firm said Friday.

“Moody’s has made no changes to its indemnification language in over a year,” the spokesman said. “The indemnification clause included is common in business services agreements. Over the past few years we have been introducing standard rating agreements across all sectors, including the municipal sector.

Moody’s made the statement after The Bond Buyer reported that municipal market participants have become concerned that Moody’s was adding provisions to rating applications to get issuers to agree to indemnify the firm for legal costs for lawsuits or judgments against it in certain cases.

The Dodd-Frank Wall Street Reform and Consumer Protection Act that was enacted on July 21 basically allows investors to sue rating agencies if they “knowingly or recklessly” fail to investigate the data they rely on when rating a bond or security.

But the spokesman for Moody’s said the indemnification language has been included in rating applications in various sectors of the financial markets for quite some time.

Moody’s only began trying to encourage issuers in the municipal bond market to go through the application process for ratings since last year, he said.

However, one bond lawyer who did not want to be identified said Friday that, while his firm does not normally see these rating applications and hasn’t done any kind of internal or external survey on them, its experience seems to counter Moody’s statement.

One of the firm’s clients signed a rating application in June that did not have the indemnification language in it, he said.

The same client was about to sign another rating application this week that was addressed to the same group at Moody’s that had the indemnification language in it.

Both the earlier and more recent rating applications were dated January 2010, he said, adding: “So draw your own ­conclusions.”

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