Standard & Poor’s responded to a July 31 article published by the New York Times that charges S&P with lowering its standards to attract business. The ratings agency said that its CMBS ratings stack up to the competition's.
According to the article written by Nathaniel Popper, “S&P has been giving higher grades than its big rivals to certain mortgage-backed securities.”
This claim is based on an analysis conducted for the New York Times by Commercial Mortgage Alert.
S&P sent a letter to the editor of the New York Times on Thursday, charging that the article misrepresented the difference between S&P’s ratings and those of its competitors.
The ratings agency said that since it implemented new methodology for rating CMBS, “there are no bonds where it has assigned a ‘AAA’ rating and another agency assigned a lower rating to the same bond.”
According to S&P’s analysis, 97% of the CMBS it rated since changing its methodology were rated the same as or lower than other rating agencies.
And contrary to the claim that its gained business, S&P said that its market share has in fact fallen by more than half from Q1 to the Q2 of 2013.
Ratings agencies under rule 17-g 5, which came into force on June 2, 2010, have the option of issuing unsolicited ratings as a measure to combat any so-called “ratings shopping” by issuers.
Under 17-g 5 rating agencies have access to all of the information they need to provide unsolicited ratings. The rule requires issuers, sponsors and underwriters of structured finance deals to maintain a password-protected Web site containing all of the data and documents they provide to the credit rating agencies they hire as well as transcripts of interactions with these agencies; the agencies that are not hired must have access to these Web sites as well.
Issuing unsolicited ratings would also seem to offer a way for the agencies to boost their credibility in the wake of accusations that they contributed to the financial crisis by failing to accurately gauge the credit risks behind the mountain of now-downgraded triple-A debt.
But for legal and financial reasons, the option to issue these ratings has gone largely unused. Instead ratings agencies have opted to voice differing ratings opinions via unsolicited commentary.
An unsolicited comment will happen in transactions where a ratings agency is ultimately not asked to rate the transaction but would like to indicate how its view of the transaction is different from others.
The concept of ratings rotation is also being considered under section 939F of the Dodd-Frank Act, also known as the Franken Amendment.
The proposal calls for establishing a Credit Rating Agency Board that would determine which credit rating agency would give a financial institution the rating for their bond.