Kroll Bond Rating Agency may make little headway into breaking up the “big three,” but it may trigger changes in operations by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, according to a municipal analyst.
“It’s hard to see the need for a fourth rating for large issuers, and as Fitch saw, it will be hard to break into the market for smaller issuers that require only one or two ratings,” said Richard Larkin, senior vice president and director of credit analysis for HJ Sims.
“If Kroll, however, operates with faster rating changes, that may spur operational changes at the big three, which have historically been criticized as too slow to downgrade and too slow to upgrade.”
Larkin, commenting in his muni bond forecast for 2013, said that would require a rethinking of the rating committee process, which mandates that committees of anywhere between three and 15 senior analysts decide all ratings and changes.
“For those that have worked in the management-by-committee process, you can see why decision-making can be agonizingly slow,” he said. “That is why the municipal bond market reacts more to ‘credit watch’ or ‘under review’ statements than the actual upgrades or downgrades that might occur months after the market has already made up its own mind on credit.”