Rating Transitions for Issuers Subject to Event Risk

In this Request for Comment, we discuss how Moody's proposes to handle ratings transitions for investment-grade issuers that, after undertaking a transforming event, become exposed to the likelihood of a sudden shift in capital structure and, by extension, sudden and sizeable ratings downgrades from investment grade to speculative grade.

Transforming events typically result from strategic undertakings such as a decision by a company to:

• decapitalize materially using debt to finance a substantial stock buyback; or
• spin off a material business to shareholders and leverage the remaining business; or
• accept a largely debt-financed buyout offer from another company, management, or financial or private equity investors.