Tensions rise over MoodyÕ and Kroll ratings quarrel

National Penn Bancshares lies in the balance

Moody’s Corp. gave an unsolicited credit rating to National Penn Bancshares, a small community bank it had never assessed before, but only just after the community bank hired Kroll Bond Rating Agency to rate a new bond. 

Per The Wall Street Journal:

Kroll contends Moody’s deliberately lowballed its rating—a move that could have ripple effects through the market for National Penn’s bonds—to scare other small banks into hiring it for future deals.

“It seems this was nothing less than intimidation,” said Kroll President Jim Nadler. “Investors and issuers are worried that Moody’s, if it’s not paid their ransom, will continue doing this until they bully their way into the market.”

But the article explained that the dispute goes further than just pride.

Ratings have broad consequences for borrowers—which are often forced to pay higher interest rates as their ratings decline—and for creditors, many of whom can only buy bonds with ratings above a certain level. If one or more ratings firms issue a lower rating, they may be forced to sell.

What’s interesting is the way that Moody’s went about creating the rating.

Moody’s never met with National Penn senior management. Instead, Moody’s analysts sifted through public disclosures, listened to earnings calls and read news articles, said Allen Tischler, a senior vice president on Moody’s U.S. banking team. These types of situations, with no participation from the rated issuer, are “definitely the minority,” he added.

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