In providing this feedback to you our comments are generally speaking from the point of view of an issuer, although the issuer view must itself take account of the investor perspective and the overall functioning of the market. It is a topic that has engendered much interest from our members since it has the potential to affect many of them, not least in respect of default language used in many borrowing documents.
In summary your proposal involves Moody’s reacting to transforming events by adjusting the ratings via a series of rating actions rather than making a significant one-off multinotch adjustment on consummation of the event. The progression of these sequential rating actions will depend on
i) the expected degree of rating migration and
ii) on an assessment of probability that the event will be consummated.
Overall it is unclear to us what the real benefits of the changed approach will be and why the current system of placing a rating under review and analysing the potential change does not convey sufficient information to the market. We do not believe that any change is necessary or desirable.
If you do decide to go ahead with the new approach we would urge you to be very cautious in making any rating change and only react with any moves once the event has become highly probable. Any moves at probability levels of just 50% could well turn out to be premature and imply more certainty than is really warranted.
