May 2002
Special Comment
Rating Policy
Understanding Moody’s Corporate Bond Ratings And Rating Process
This Special Comment is the third installment of Moody’s commentary about the rating process. It
was written following extensive consultation with market participants in connection with Moody’s
previous Special Comments: The Bond Rating Process in a Changing Environment and The Bond Rating
Process: A Progress Report.1
Introduction
Earlier this year, we suggested a number of possible changes to our rating process. We indicated that
we would make no changes until after we had engaged in extensive market dialog, which we have
done over the last four months.
From these discussions, we determined that market participants support greater disclosure by
Moody’s of how we arrive at our ratings and why we change them. They also have heightened expectations
about the role of rating agencies as vehicles for greater issuer transparency and disclosure,
including disclosure of short-term liquidity positions and conditional obligations, such as those with
rating triggers.
However, participants strongly oppose some of the possible changes we suggested: increasing
the frequency of rating changes without reviews; and streamlining rating outlooks, or even eliminating
them. Market participants strongly oppose these changes because they generally desire ratings
stability, and they believe such changes would increase ratings volatility. They want ratings to be a
view of an issuer’s relative fundamental credit risk, which they perceive to be a stable measure of
intrinsic financial strength.
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