Connecticut will receive a credit of about $900,000 from the three major rating agencies as part of a settlement from a lawsuit it initiated, accusing the three of unfairly lowering ratings.
The state sued Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings in July 2008, alleging deceptive and unfair trading practices resulted in cities, towns and school districts paying higher-than-necessary interest rates, and having to purchase unnecessary bond insurance.
The complaints alleged that public bonds frequently received lower ratings than corporate bonds, “even though the rating agencies’ own studies showed that public bonds were far more likely to be paid back than their corporate counterparts,” Attorney General George Jepsen’s office said in a statement.
It said the settlements do not affect separate lawsuits filed against Moody’s and S&P in March 2010 alleging the agencies misrepresented their analyses of structured finance securities. Those lawsuits are pending in Connecticut Superior Court.
As part of the agreement, the agencies said they violated no laws. In addition, the three have also agreed to meet with Connecticut issuers to explain their rating scales and factors.
Fitch and S&P now rate the state’s general obligation bonds AA, while Moody’s rates them Aa2.
“Moody’s is pleased to have reached an agreement with the state of Connecticut to resolve this matter without costly and protracted litigation. We look forward to continuing to provide public bond issuers in Connecticut with our ratings opinions,” Moody’s said in a statement.
Standard & Poor’s, in a statement issued separately, added: “We are pleased to have reached an amicable resolution with the state of Connecticut and look forward to rating the state’s future bond offerings. S&P remains committed to providing transparent, comparable ratings.”
Fitch said: “This settlement reflects our strong belief that Fitch’s ratings were fair and transparent, and we are pleased to resolve this matter.”
Officials from some municipalities have criticized the rating agencies for downgrades, including some multi-notched. In Collingswood, N.J., last month, Mayor James Maley objected when Moody’s lowered the borough’s rating six notches to Ba1, or junk status, from A1, citing exposure to real estate debt.
“This is very serious,” said Maley, who met shortly thereafter with Moody’s officials looking for its credit rating to be restored.
Last week, Standard & Poor’s downgraded Northumberland County, Pa., two notches to BBB-plus from A, with a negative outlook. Frank Sawicki, chairman of Northumberland’s Board of Commissioners, said in an interview this week that he hoped to meet soon with that agency’s representative. “I would like to do that,” he said.
S&P cited Northumberland’s sustained structural deficit that could result in a substantive negative unreserved general fund balance at the end of fiscal 2011.