Moody's Ratings

Together, Moody's, S&P and Fitch are sometimes referred to as the Big Three credit rating agencies. While credit rating agencies are sometimes viewed as interchangeable, Moody's, S&P and Fitch have different methodologies. All three operate worldwide, maintaining offices on six continents, and rating tens of trillions of dollars in securities. Moody's Ratings and its close competitors play a key role in global capital markets as supplementary, third-party providers of credit analysis used by banks and other investors when assessing the credit risk of particular securities. This form of third party analysis is particularly useful for smaller and less sophisticated investors, as well as for all investors to use as an external comparison for their own judgments. Credit rating agencies also play an important role in the laws and regulations of the United States and several other countries, such as those of the European Union. In the United States their credit ratings are used in regulation by the U.S. Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations (NRSROs) for a variety of regulatory purposes. However, another aspect of mechanical use of ratings by regulatory agencies has been to reinforce "pro-cyclical" and "cliff effects" of downgrades. In October 2010, the Financial Stability Board (FSB) created a set of "principles to reduce reliance" on credit rating agencies in the laws, regulations and market practices of G-20 member countries. including, for example, A. M. Best, which focuses on obligations of insurance companies. Companies with which Moody's competes in specific areas include investment research company Morningstar, Inc. and publishers of financial information for investors such as Thomson Reuters and Bloomberg L.P. Especially since the early 2000s, Moody's frequently makes its analysts available to journalists, and issues regular public statements on credit conditions. == Moody's credit ratings ==

According to Moody's, the purpose of its ratings is to "provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged". To each of its ratings from Aa through Caa, Moody's appends numerical modifiers 1, 2 and 3; the lower the number, the higher-end the rating. Aaa, Ca and C are not modified this way. As Moody's explains, its ratings are "not to be construed as recommendations", nor are they intended to be a sole basis for investment decisions. In addition, its ratings do not speak to market price, although market conditions may affect credit risk. == History of Moody's ==

Founding and early history Moody's traces its history back to two publishing companies established by John Moody, the inventor of modern bond credit ratings. In 1900, Moody published his first market assessment, called ''Moody's Manual of Industrial and Miscellaneous Securities'', and established John Moody & Company. Moody was forced to sell his business, due to a shortage of capital, when the Panic of 1907 fueled several changes in the markets. Moody returned in 1909 with a new publication focused solely on railroad bonds, Analysis of Railroad Investments, and a new company, Moody's Analyses Publishing Company. Moody was also the first to charge subscription fees to investors. and the increased complexity of the financial markets. Rating agencies also grew in size as the number of issuers grew, both in the United States and abroad, making the credit rating business significantly more profitable. In 2005 Moody's estimated that 90% of credit rating agency revenues came from issuer fees. The end of the Bretton Woods system in 1971 led to the liberalization of financial regulations, and the global expansion of capital markets in the 1970s and 1980s. The 1980s and beyond saw the global capital market expand; Moody's opened its first overseas offices in Japan in 1985, followed by offices in the United Kingdom in 1986, France in 1988, Germany in 1991, Hong Kong in 1994, India in 1998 and China in 2001. as well as criticism following the Enron scandal, the U.S. subprime mortgage crisis, and the 2008 financial crisis. In 1998, Dun & Bradstreet sold the Moody's publishing business to Financial Communications (later renamed Mergent). Following several years of rumors and pressure from institutional shareholders, in December 1999 Moody's parent Dun & Bradstreet announced it would spin off Moody's Investors Service into a separate publicly traded company. Although Moody's had fewer than 1,500 employees in its division, it represented about 51% of Dun & Bradstreet profits in the year before the announcement. The spin-off was completed on September 30, 2000, and, in the half decade that followed, the value of Moody's shares improved by more than 300%. According to the Financial Crisis Inquiry Report, during the years 2005, 2006, and 2007, rating of structured finance products such as mortgage-backed securities made up close to half of Moody's rating revenues. From 2000 to 2007, revenues from rating structured financial instruments increased more than fourfold. However, there was some question about the models Moody's used to give structured products high ratings. In June 2005, shortly before the subprime mortgage crisis, Moody's updated its approach for estimating default correlation of non-prime/nontraditional mortgages involved in structured financial products like mortgage-backed securities and Collateralized debt obligations. Its new model was based on trends from the previous 20 years, during which time housing prices had been rising, mortgage delinquencies very low, and nontraditional mortgage products a very small niche of the market. On July 10, 2007, in "an unprecedented move", Moody's downgraded 399 subprime mortgage-backed securities that had been issued the year before. Three months later, it downgraded another 2506 tranches ($33.4 billion). By the end of the crisis, Moody's downgraded 83% of all the 2006 Aaa mortgage backed security tranches and all of the Baa tranches. In June 2013, Moody's Investor Service has warned that Thailand's credit rating may be damaged due to an increasingly costly rice-pledging scheme which lost 200 billion baht ($6.5 billion) in 2011–2012. == Controversies ==

Sovereign downgrades Moody's, along with the other major credit rating agencies, is often the subject of criticism from countries whose public debt is downgraded, generally claiming increased cost of borrowing as a result of the downgrade. Examples of sovereign debt downgrades that attracted significant media attention at the time include Australia in the 1980s, Canada and Japan in the 1990s, Thailand during the 1997 Asian financial crisis,