Moody's Investors Service is modifying the rating methodology it applies to structured finance securities wrapped by financial guarantors.
If a structured finance security is wrapped, the Moody's rating will be the higher of the guarantor's financial strength rating and the current underlying rating (i.e., absent consideration of the guaranty) on the security, regardless of whether the underlying rating is published or not.
If the rating agency is unable to determine the underlying rating or an issuer has requested that the guaranty constitute the sole credit consideration, the wrapped security will take the rating of the financial guarantor.
Moody's plans to complete the majority of the review of all wrapped structured security ratings under this modified approach within around 60 days.
Its previous approach was to rate to the higher of the guarantor's financial strength rating and any published underlying rating.
When a downgrade of a financial guarantor below investment grade happens, the rating agency's approach would be to withdraw the rating on an instrument that did not have a published underlying rating. To date, no rating has been withdrawn under this approach, as Moody's has been working with issuers to publish their underlying ratings.
At this time, Moody's is not changing the rating methodology it applies for non-structured securities wrapped by financial guarantors, a release from the rating agency said.