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Rating Action:

MOODY'S RE-CALIBRATES ITS PREFERRED STOCK RATING SCALE TO PROMOTE CROSS-SECTOR COMPARABILITY

27 Jul 2001
MOODY'S RE-CALIBRATES ITS PREFERRED STOCK RATING SCALE TO PROMOTE CROSS-SECTOR COMPARABILITY As previously announced on May 18th, Moody's Investors Service is now applying its Aaa-through-C bond rating scale to preferred stock issues and re-calibrating its rating scale for subordinated bonds. These rating adjustments will meet increased investor demand for comparability of credit risk assessments across sectors of the fixed income markets globally. The conceptual framework underlying these ratings reflects the findings of the agency's ongoing research on rating consistency and expected variations in post-default recovery values across security types, industries, and geographic regions. A complete current listing of the ratings affected is now available on Moody's Website: www.moodys.com (such list may be updated from time to time). The rating agency emphasized that the re-calibration represents a change in its overall rating system for preferred stock and subordinated bonds but not a change in its risk assessment of any issuer's fundamental credit quality. Moody's also noted that the notching guidelines that underlie these rating adjustments (discussed below) pertain to the securities of a single corporate issuer that differ with respect to priority of claim in bankruptcy. The methodology, however, does not address securities issued by different legal entities within a company. For those situations, notching among securities is based on company-specific analyses of the relative expected loss rates on the obligations issued by the various entities. Further details on the methodology and research underpinning the re-calibration are available in a Moody's Rating Methodology report: "Notching for Differences in Priority of Claims and Integration of the Preferred Stock Rating Scale", which can also be downloaded from Moody's Website. In this research, Moody's explains that its debt ratings are intended to reflect both the probability that an issuer will default on its debt and the likely severity of loss should default occur. Moody's assessment of probability of default is reflected in the rated issuer's senior unsecured rating or senior implied rating. Ratings on specific securities of each issuer are then "notched" higher or lower to account for variations in expected loss rates in the event an issuer defaults. For example, for issuers with both senior unsecured and subordinated bonds in default, Moody's research has shown that, for the past several decades, losses on the subordinated bonds have been on average 52% greater than the losses on senior unsecured bonds. For issuers with both senior unsecured bonds and preferred stock in default, loss rates have been 85% greater on average for preferred stock compared to senior unsecured bonds. These relative loss severity statistics, coupled with the schedule of historical investor loss rates for securities in different rating categories, provide the foundation of Moody's notching guidelines. Specifically, for issuers with senior unsecured or senior implied ratings of Ba2 or higher, preferred stock is generally rated two notches below the lower of the senior unsecured rating or senior implied rating. For issuers with a senior implied rating of Ba3 or lower, preferred stock is generally rated three notches below the senior implied rating. Trust preferred stock, however, is rated at the same level as assets held or to be held by the trust, which is subordinated debt in most instances. In addition, we have eliminated differentials between ratings of cumulative and non-cumulative preferred stock -- all classes of preferred stock issued by a single company are generally rated at the same level, reflecting the relatively narrow loss differential between cumulative and non-cumulative preferreds. For issuers with a senior unsecured or senior implied rating of Ba2 or higher, all classes of subordinated debt (e.g., senior subordinated, subordinated, and junior subordinated debt) are generally rated at the same level. In addition, for those same issuers, subordinated debt is generally rated one notch below the lower of the senior implied or senior unsecured rating. For issuers with senior implied ratings of Ba3 and lower, various classes of subordinated debt continue to be rated at different levels, if appropriate, in light of company-specific expected loss severity analysis by debt class. Moody's is withdrawing the ratings on intra-company holdings of subordinated debt that were issued in connection with a trust preferred stock structure. Now that preferred stock is rated on the debt rating scale, investors no longer need a rating on the related assets held by the trust. A list of affected ratings is available at www.moodys.com under the "Highlights" section of the home page (such list may be updated from time to time). Those who access ratings through Moody's databases should note that Moody's is beginning the process of adjusting affected ratings in its extensive databases and expects to complete the adjustments very shortly. Ratings for any issuer can be obtained at any time using the "quick search" function on moodys.com or by calling Moody's Ratings Desk at (212) 553-0377. For additional information about our methodology, please see our May 18th press release "Moody's Announces Changes in 'Notching' Practices; Select Preferred Stock and Below-Investment Grade Ratings Among Those Affected" and our November 2000 methodology, "Notching for Differences in Priority of Claims and Integration of the Preferred Stock Rating Scale". Other related research includes: "The Evolving Meaning of Moody's Bond Ratings," August 1999; "Default and Recovery Rates on Corporate Bonds: 2000," February 2001; and "Preferred Stock Ratings and Credit Risk," February 1998.
No Related Data.
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CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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