Capital Markets

Realpoint Okayed by SEC as a Rating Firm

A specialist in structured finance, bond-rating firm joins Moody's, S&P, Fitch, A.M. Best, Dominion and four others as recognized organizations.
Stephen TaubJune 24, 2008

Realpoint LLC, a specialist in the structured finance sector, gained status from the Securities and Exchange Commission as a nationally recognized statistical rating organization. It becomes the tenth bond-rating firm to win designation as an NRSRO.

The company said it is the only rating agency specializing in structured finance. It uses a subscription-based investor model, as opposed to the traditional issuer-paid approach, it added. Debt-rating companies that charge issuers have been criticized for having a conflict of interest, because the rating company might want more of their business in the future.

The Credit Rating Agency Reform Act of 2006, signed into law in October 2006, abolished the previous method the SEC used to designate NRSROs. In May 2007, the SEC voted unanimously to adopt rules increasing its oversight, with the aim of opening the market to more credit-rating competition. For one thing, the SEC boosted its authority to inspect rating agencies, although it has no say over their methodologies.

Before the law was passed there were five NRSROs: Moody’s, Standard and Poor’s, and Fitch — which together account for 80 percent of the market, a House committee affirmed last year — plus A.M. Best and Dominion Bond Rating Service.

“Realpoint gives investors truly independent, unbiased analysis and greater transparency of the process,” said Rob Dobilas, its president and CEO.

The SEC noted that in granting Realpoint its designation, the company had a conflict of interest that would cause the firm to be in violation of Rule 17g-5(c)(1) for the fiscal year ending December 31, 2007, because it maintained credit ratings solicited by a person that provided Realpoint with 10 percent or more of its total net revenue for that year. The Commission granted Realpoint the exemption from the rule that it requested for 2007. Among other things, the commission said that granting the exemption furthered the primary purpose of the Rating Agency Act, which is to enhance competition in the highly concentrated ratings industry.