Case in point: on Thursday, Standard & Poor’s Rating Services said that it had put its ‘A-1′ commercial paper rating for Moody’s Corp. (MCO: 33.80, -2.06%) on negative ratings watch. The move by S&P comes in response to revelations earlier in the week that Moody’s allegedly incorrectly awarded Aaa-level ratings to billions of dollars’ worth of so-called constant-proportion debt obligations, or CPDOs, due to a data coding glitch.
Moody’s has taken the allegations seriously, and retained the law firm Sullivan & Cromwell and
initiated an external review of their European CPDO ratings process.
“While the specific potential business and financial impact to Moody’s is currently uncertain,” S&P said in a press statement, “this comes at a time when expected declines in revenue and cash flow at Moody’s in 2008 are expected to meaningfully reduce flexibility in the company’s leverage profile.”
Despite the potential for a downgrade, S&P did say that it wasn’t concerned about the company’s liquidity, given cash and short-term investments of $350 million at March 2008 and the company’s $1 billion revolving credit facility, which provides back-up for its $1 billion commercial paper program.
While the news of rating agency-on-rating agency seems strange enough, Bloomberg ran the quote of day, courtesy of Janet Tavakoli:
“They’re starting to feed on each other,” said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance Inc., which advises banks and hedge funds.