Moody's, S&P Ask Companies To Disclose Rating 'Triggers'

Faced with the prospect of increased scrutiny by the Securities and Exchange Commission (SEC), Moody’s Investors Service and Standard & Poor’s said yesterday they have expanded the types of information requested from companies.

Both agencies are now asking companies to disclose rating “triggers.” These are clauses in agreements that can adversely affect a company's liquidity if and when the company's rating is downgraded, (e.g., by forcing it to pay off debt or pay a higher interest rate.) “We've called for greater public disclosure of these contingent arrangements,” said Clifford Griep, Standard & Poor's chief credit officer. “Their usage has become so common that there is a need to incorporate triggers in the rating process.”

Moody's spokeswoman Fran Laserson said, “We've communicated with all of our corporate clients and asked them to identify rating triggers in financial agreements, operating agreements, indentures and other legal obligations. Rating triggers can have unintended and highly disruptive consequences for both borrowers and lenders.”

The other leading U.S. rating agency, Fitch Ratings, is also contemplating changes. “Like all market participants, we have become increasingly concerned about the inadequacy of disclosure regarding off-balance [sheet] and other forms of contingent liabilities,” said spokesman Jim Jockle. “We are currently exploring a variety of ways to increase access to this information.”

Earlier this week, SEC Chairman Harvey Pitt told Congress, “We're looking at how rating agencies perform. They have enormous impact on the stock market, and yet they're essentially totally unregulated.” The rating agencies were faulted for failing to alert investors and analysts to factors that contributed to the Enron collapse.

-Rosemary Schlank

You may like these other stories...

There’s a way for investors to brave the world beyond stocks and bonds of a traditional Individual retirement arrangement (IRA) and venture into real estate, tax liens, unregistered securities and so on. Their avenue...
KPMG LLP has agreed to shell out $8.2 million to settle charges from the US Securities and Exchange Commission (SEC), which found that the Big Four firm violated auditor independence rules by providing certain nonaudit...
By Jason Bramwell, Staff WriterJuly 1, 2014, is the date when the first set of municipal advisors will be required to register under new rules the US Securities and Exchange Commission (SEC) finalized last year.The SEC...

Upcoming CPE Webinars

Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.
Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.