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Rating Methodology


January 2002

Special Comment


The Bond Rating Process In A Changing Environment



Recent events have sharpened the focus of capital market participants on issues of credit quality.
These events include the September 2001 terrorist attacks in the United States, global economic
contraction, and the highly visible financial setbacks - including some notable bankruptcies -
suffered by a number of well-known US, European, and Japanese companies.

As is typical in such an environment, there has been considerable attention given to Moody's
rating downgrades of high-visibility corporate and sovereign issuers. In addition to a higher incidence
of downgrades relative to upgrades over the past year, there has also been a marked
increase in the incidence of repeat rating actions (serial downgrades of the same issuer).

We seek to maintain ratings that accurately reflect our current opinion of the creditworthiness
of rated issuers. To the extent that these assessments change, we adjust our ratings to reflect
our revised opinion of each borrower's credit quality. Consequently, any increase in the frequency
or extent of recent rating adjustments is a result of changes in Moody's opinions in the
context of a more volatile credit environment, rather than a shift in our fundamental approach
to the rating process.