DALLAS — Credit ratings analysts told the 54th annual conference of the Texas Municipal Advisory Council last week in San Antonio to expect the migration to a single global market scale to occur in the first quarter of next year at the earliest.

Representatives from Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings outlined the rationale behind the delay, which they attributed in part to “unprecedented market turmoil.”

“The decision to defer until the first quarter of 2009 is in recognition of the extreme volatility of the credit markets,” said Fitch executive managing director Richard Raphael. “The entire economy is experiencing extreme disruption right now, and we felt it best to wait until the first quarter to take a look at what all this means.”

Earlier this month, Fitch formally announced its “plans to revisit the recalibration” in the first quarter of next year, as “impaired market access adds a degree of volatility to municipal credit risk, and brings into question the appropriateness of revising upward municipal ratings by the levels and methodology” proposed in late July.

Ken Kurtz, Moody’s team managing director, said “with 40,000 ratings it’s more than just a change in the scale.”

“In September, we said we’d be migrating to the global scale in October, but that’s now delayed,” he said. “We just didn’t want to cause any additional confusion in the market and our staff needs to focus on the current credit issues and not the global scale change. We’re committed to the change and will take another look at the recalibration later. It will take eight to 12 weeks to process and the latest start would be in January.” 

Alex Fraser, managing director with Standard & Poor’s in Dallas, said his firm “continues to rate on a single scale.

“Earlier this year, you started to see a lot of [general obligation] upgrades here in Texas … and I expect you’ll continue to see more of the same from S&P,” he said.

Dyer Greer, senior fixed-income analyst with USAA Investment Management, said the “majority of the buy side is against the migration…sophisticated investors know the difference. But what’s best for issuers is best for the market.”

Greer said some of the arguments against the change revolve around the belief that “some municipalities may not work as hard on their financials once they get a double-A or triple-A rating.” He also said transparency and a lack of disclosure become an issue as some issuers tend to provide less and less information as their rating gets higher and higher.

Last week, while the Texas MAC conference was being held, other representatives of the ratings agencies were on Capitol Hill answering questions about their role in the nation’s economic crisis. Members of the House Committee on Oversight and Government Reform asked the ratings services about some concerns regarding why corporate debt carries higher rating than municipal debt despite lower default rates on muni bonds, among other complaints.

Committee chairman Henry Waxman, D-Calif., said “the story of the credit rating agencies is a story of colossal failure.”

In July, the House Financial Services Committee approved a bill that requires the three ratings agencies to use a single scale based on the likelihood of repayment.



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