Capital Markets

Moody’s Mulls Separate Rating for Structured Securities

Distinguishing the ratings of structured securities from that of corporate securities could boost confidence in credit rating, the agency hopes.
Stephen TaubFebruary 13, 2008

Moody’s is seeking comment on a proposal in which one of the alternatives is for the credit-rating agency to move to an entirely separate rating scale for structured securities. The new scale would distinguish structured securities from corporate securities.

The changes being mulled would be made in response to the current rough sailing in the credit markets and to boost confidence in credit rating, the rating company said. “Some market participants have asserted that structured and non-structured securities possess inherently different risk characteristics, such that, for example, Aaa-rated structured securities may not have the same risk characteristics as Aaa-rated corporate securities,” Moody’s stated.

“Distinguishing the ratings of structured securities from non-structured securities could help raise investor awareness of potential differences in meaning and behavioral attributes between the two categories of securities, providing further information to investors in their investment decision-making processes,” according to the credit rating agency.

Among the choices Moody’s, which hasn’t yet formulated its own opinion, is handing out for comment is the creation of an entirely separate rating scale for structured products. It’s also asking investors whether they think the agency should change the current scale for rating structured products or add information to the existing rating scale.

Other possibilities are to make no changes in the existing rating scale but provide scores on other risk factors or more detailed analysis of the risk characteristics of structured securities.