(FT Alphaville) Standard & Poor’s Ratings Services today placed its ‘A-1′ commercial paper rating for Moody’s Corp. on CreditWatch with negative implications.
The CreditWatch listing reflects recent press reports regarding potential problems with analytical models and methodologies used in Moody’s process for rating European constant-proportion debt obligations (CPDOs).
Moody’s announced yesterday it had 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, 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. These concerns are exacerbated by the potential impact of the previously mentioned press reports.
We will monitor any related developments, and will incorporate the outcome of the company’s external review into our considerations in resolving this CreditWatch listing, though we could take a rating action prior to the completion of the review if events warrant it.
We are not concerned about Moody’s current liquidity position, 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.