An independent study meant to settle the now-stale notching debate appears to be near completion, after a lengthy and unexplained delay.

The most recent draft went to the three rating agencies for comment last week, popping up in email inboxes Wednesday about 1:30 a.m., several sources said.

With about 60 pages of text and 205 pages of data exhibits, "there is a massive amount of data to review," one rating agency official said.

There is no deadline for returning comments, and no officials would speculate on how soon the report would be completed and released publicly. But the general sense is this is the final draft.

The study - begun by National Economic Research Associates Inc. in December 2001 at the behest of Moody's Investors Service - is meant to compare variances in corporate debt and structured finance ratings across agencies, despite different methodologies and, most importantly, examine how they compare over time.

In the past few months, rating agencies reviewed and commented on several other drafts of the report, sources said. None would discuss, however, how the report has changed with each draft, citing a confidentially agreement with NERA.

NERA Senior Vice President Andrew Carron, who chairs NERA's Securities and Finance practice area and who is spearheading the study, dismissed speculation of changes in the study's scope. Asked if there was any truth to that rumor, he said simply, "No."

The scope of the study in its current form seems to be focused on ratings variances among the three rating agencies over a five-year period, with NERA calculating which agency's ratings lead and/or lag bond performance. While it was meant to settle disputes among the rating agencies' structured finance groups, NERA primarily looked at both investment-grade and below investment-grade debt.

Carron conceded that the study has taken longer than anticipated, after NERA issued a January press release announcing the report be released in the first quarter. But Carron declined to offer any insight into the reason for the delay, except to say, "The project turned out to require more work than we had originally thought."

Although Moody's is sponsoring the study, NERA has been explicit from the start about keeping its research objective. NERA said no market participants would influence the report, including its sponsor.

Most involved, who had seen last week's draft, said that there were positives and negatives for all three rating agencies and, in the end, it would benefit the rating-agency industry. "There is something in this report that all parties can point to and be happy with," one rating agency source said.

"We can't comment now, but we are confident that the report will support our research confirming that the ratings of the three major rating agencies behave similarly," a Fitch Ratings spokesman said.

Moody's commissioned the study, at least in part as a response to the controversy that arose over its politics on notching, which flared up in June 2001 as CDO volume reached its peak (see ASR 12/17/01).

Increasingly, rating agencies were asked to assess underlying collateral pools that included bonds rated by competing agencies and not their own. Every agency puts restrictions on collateral that others have rated, and often adjusts, or notches, the other agency's rating to approximate its own mark.

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