Moody's

Not to be confused with Moodyz.
Moody's Corporation
Type Public
Traded as NYSE: MCO
S&P 500 Component
Founded New York City (1909)
Headquarters 7 World Trade Center,
New York City, New York, U.S.
Revenue $2.032 billion (2010)
Operating income $772.8 million (2010)
Net income $507.8 million (2010)
Website moodys.com
References: [1]

Moody's Corporation (NYSE: MCO) is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized ratings scale. It is one of the Big Three credit rating agencies and has a 40% share of the world market, as does its main rival, Standard & Poor's;[2] Fitch Ratings has a smaller share.[3]

Moody's was founded in 1909 by John Moody. The top institutional owner and only shareholder holding more than 5% of all shares of Moody's is Warren Buffett's company Berkshire Hathaway, holding a share of ~13%.[4]

Contents

History

John Moody & Company was founded in 1900. The first product was Moody's Manual of Industrial and Miscellaneous Securities. The company did not survive the stock market crash of 1907. In 1909, a new company, now known as Moody's, was founded by John Moody, and published Analyses of Railroad Investments, "a book about railroad securities, using letter grades to assess their risk."[2] Moody's Investors Service was incorporated on July 1, 1914, and soon extended coverage to US municipal bonds. By 1924, Moody's ratings covered nearly 100 percent of the US bond market.[5]

In the 1970s, Moody's expanded into commercial debt, and also began the practice, along with other ratings agencies, of charging bond issuers for ratings as well as charging investors.[5]

The number of countries covered by Moody's has risen from 3 in 1975, to 33 in 1990, to over 100 by 2000.[6] Announcements by Moody's of possible or actual downgrades of a country's bond rating can have a major political and economic impact, as for example in Canada in 1995[6] and the United States in 2011.[7]

Criticism

See also: Credit rating agency criticism

Credit rating agencies such as Moody's have been subject to criticism in the wake of large losses in the asset-backed security collateralized debt obligation (ABS CDO) market that occurred despite being assigned top ratings by the credit rating agencies. For instance, losses on $340.7 million worth of ABS collateralized debt obligations (CDO) issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Moody's.[8]

Similarly, large companies such as Bear Stearns and Lehman Brothers had AAA and AA rating until they went bankrupt in 2008.[9]

Power and influence

Moody's has been accused of "blackmail". In one example the German insurer Hannover Re was offered a "free rating" by Moody's. The insurer refused. Moody's continued with the "free ratings", but over time lowered its rating of the company. Eventually, Moody's lowered Hannover's debt to junk, and the company in a few hours lost $175 million in market value.[10]

Portugal controversy

Portugal's foreign debt downgrade to the category Ba2 "junk" has infuriated the European Union and Portugal alike. Moody's has been accused of fueling speculation and bias towards European assets. Furthermore the legitimacy of US based rating agencies has also been put in question.[11] State owned utility and infrastructure companies like ANA – Aeroportos de Portugal, Energias de Portugal, Redes Energéticas Nacionais, and Brisa – Auto-estradas de Portugal were also downgraded despite claims to having solid financial profiles and significant foreign revenue.[12][13][14][15]

Portuguese citizens promptly classified Moody's actions as economic terrorism and began several initiatives on social sites, namely Facebook, to express their outrage. Mainly the initiatives were aimed at disrupting Moody's website. On the 11th of July, the website was temporarily unavailable in Portugal and a few other countries, due to a coordinated DDoS attack. Portuguese IP's were temporarily blocked from the web server in order to minimize the disturbance.[16]

Moody's ratings

A credit rating is a quantitative and qualitative analysis of the credit worthiness of an issuer of debt. In short, it evaluates an organization’s projected ability to meet its overall and specific fiscal commitments.

Long-term obligation ratings

Investment grade

Speculative grade (also known as "High Yield" or "Junk")

Special

Short-term taxable ratings

Moody notes that "Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its guarantor or support-provider."[20]

Short-term tax-exempt ratings

Unlike S&P, Moody's has separate categories for short term municipal bonds. The ratings categories largely overlap, though, and have the same implications for the ability to repay short-term obligations.

Individual bank ratings

Moody's also rates each bank's financial strength.[18] These ratings differ from deposit ratings in that they measure how likely the bank is to need assistance from third parties.

Types of Ratings & Rating Criteria

A credit rating is a quantitative and qualitative analysis of the credit worthiness of an issuer of debt. In short, it evaluates an institution’s projected ability to meet its overall and specific fiscal commitments. Due to the variety of different types of organizations and their different needs, Moody's divides organizations into market sectors in order to better categorize the information. There are a variety of different market sectors that Moody's covers with its ratings and analytic services. A list of these sectors is below:

Corporates

Moody's provides research and analysis on public companies and their debt instruments. This category is divided into market segments based on the type of industry of the corporation. Those categories, as well as the current number of ratings in each category, are listed below: [22]

US Public Finance

This sector is very broad, spanning research and analysis on 90% of public debt issued by state and local governments, hospitals, higher education institutions and other tax-exempt entities. The market sectors in this category, as well as the number of institutions rated in each one, are below:[22]

Higher Education & Not-for-Profit Organizations

The credit rating for a higher education institution is determined by considering a variety of factors, including market position, operating performance, balance sheet and capital investment, governance and management, and legal security and debt structure.

Structured Finance

Structured Finance includes coverage of asset classes ranging from the traditional, such as mortgages, autos and credit cards, to evolving classes, such as intellectual property and collateralized debt obligations.[22]

Financial Institutions

This includes credit ratings and analysis on banks and securities firms, insurance, real estate and non-bank finance companies. The market sectors within this category can be found below:[22]

Managed Investments

The Global Managed Investments (GMI) Group is responsible for Moody's ratings of asset managers, money market funds, fixed-income funds (bond funds, absolute return funds), exchange funds, hedge funds and other alternative investments. This category is divided into several market sectors, which can be found below:

Sovereign & Supranational

Research on sovereign nations, sovereign-related agencies, and supranational institutions.[22]

Sub-Sovereign

This includes credit ratings, research and analysis on regional and local governments as well as on a wide array of public-sector entities with specialized mandates in both the developed and emerging markets, including mass transportation, health care, water systems, social housing, higher education, and charity trusts.[22]

Infrastructure & Project Finance

Moody's Global Infrastructure Finance Group combines the expertise of a global team of analysts with extensive backgrounds in Public Finance, Corporate Finance, and Structured Finance to rate debt issued by both public and private infrastructure and project finance issuers and electric, gas and water utilities. This includes project finance entities that are limited to a special purpose by law, regulation, or contracts; infrastructure projects and enterprises financed in the U.S. tax-exempt market; and all corporate infrastructure and utility companies. Our approach allows market participants to benefit from a globally consistent and transparent methodological approach to assessing credit risk across the entire asset class.[22]

There are a number of different market sectors under the category of "Infrastructure and Public Finance"; a list can be found below:

Executive officers

See also

References

  1. ^ "Moody's Corporation Form 10-K date=28 February 2011". ir.moody's.com. Moody's Corporation. http://ir.moodys.com/secfiling.cfm?filingID=1193125-11-47974. Retrieved 4 August 2011. 
  2. ^ a b Alec Klein, Washington Post, November 23, 2004, Smoothing the Way for Debt Markets: Firms' Influence Has Grown Along With World's Reliance on Bonds
  3. ^ http://www.juneauempire.com/stories/050509/opi_436594375.shtml
  4. ^ Director and Shareholder Affiliation Policy on moodys.com
  5. ^ a b Moody's History
  6. ^ a b Alec Klein, Washington Post, November 23, 2004, Credit Raters Exert International Influence
  7. ^ "Moody’s Downgrade Warning Adds Pressure on U.S. Debt Deal" byJohn Detrixhe and Daniel Kruger, Bloomburg, July 4, 2011, [1]
  8. ^ Tomlinson, Richard; Evans, David (2007-05-31). "CDO Boom Masks Subprime Losses, Abetted by S&P, Moody's, Fitch". Bloomberg. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajs7BqG4_X8I 
  9. ^ "Credit Rating Agency Analysts Covering AIG, Lehman Brothers Never Disciplined" The_Huffington_Post,September 30, 2009, [2]
  10. ^ "Credit Raters' Power Leads to Abuses, Some Borrowers Say" byAlec Klein, Washington Post, November 24, 2004, [3]
  11. ^ [|Luke, Baker] (2011-07-06). "UPDATE 2-EU attacks credit rating agencies, suggests bias". Reuters. http://www.reuters.com/article/2011/07/06/eurozone-ratings-barroso-idUSLDE7650ST20110706 
  12. ^ http://www.moodys.com/research/Moodys-downgrades-ANA-Aeroportos-de-Portugal-to-Baa3-from-A3?lang=en&cy=global&docid=PR_222253
  13. ^ http://www.moodys.com/research/Moodys-downgrades-EDPs-rating-to-Baa3-outlook-negative?lang=en&cy=global&docid=PR_222082
  14. ^ http://www.moodys.com/research/Moodys-downgrades-RENs-rating-to-Baa3-keeps-rating-under-review?lang=en&cy=global&docid=PR_221992
  15. ^ http://www.moodys.com/research/Moodys-downgrades-BCR-to-Baa3-under-review-for-further-downgrade?lang=en&cy=global&docid=PR_222177
  16. ^ http://economicsnewspaper.com/policy/spain/portuguese-surfers-coordinate-an-attack-on-moodys-website-44278.html
  17. ^ a b c d e f g h "Moody's Rating Symbols & Definitions" (PDF). p. 8. http://v3.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingsSymbolsand%20Definitions.pdf. Retrieved 2009-09-21. 
  18. ^ a b c d e f g h i j k l Moodys. Rating Definitions Requires free registration. Retrieved 2008-10-06
  19. ^ a b "Moody's Rating Symbols & Definitions" (PDF). p. 5. http://v3.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingsSymbolsand%20Definitions.pdf. Retrieved 2009-09-21. "Withdrawn - WR ... Not Rated - NR" 
  20. ^ a b c d e "Moody's Rating Symbols & Definitions" (PDF). p. 10. http://v3.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingsSymbolsand%20Definitions.pdf. Retrieved 2009-09-21. 
  21. ^ a b c d e "Moody's Rating Symbols & Definitions //" (PDF). p. 25. http://v3.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingsSymbolsand%20Definitions.pdf. Retrieved 2009-09-21. 
  22. ^ a b c d e f g h "Moody's: Market Segment". Moody's Research & Ratings. http://www.moodys.com/researchandratings/market-segment/home. Retrieved 12/16/2011. 
  23. ^ "Moody's: Corporates". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/corporates/-/005000/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  24. ^ "Moody's: US Public Finance". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/u.s.-public-finance/-/005003/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  25. ^ "Moody's: Structured Finance". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/structured-finance/-/005006/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  26. ^ "Moody's: Financial Institutions". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/financial-institutions/-/005001/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  27. ^ "Moody's: Sovereign & Supranational". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/sovereign-supranational/-/005005/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  28. ^ "Moody's: Sub-Sovereign". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/sub-sovereign/-/005007/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  29. ^ "Moody's: Infrastructure & Public Finance". Moody's Research & Ratings. Moody's Corporation. http://www.moodys.com/researchandratings/market-segment/infrastructure-project-finance/-/005008/-/-/0/0/-/0/-/-/en/global/rr. Retrieved 12/16/2011. 
  30. ^ Officers and Directors from Moody's Website

External links