I rarely look at the commerical markets here on HW, but the WSJ yesterday ran a fascinating story about the price Moody's Investors Service is apparently paying in the CMBS market for having tightened its commercial rating criteria in April.
Moody's now says it is taking a hit for being the first rating service to publicly announce it would significantly raise subordination levels. In a report on the CMBS market scheduled for release today , Moody's wrote it has been shut out of eight of the past 12 deals with a face value of $25 billion since April. "We used to rate 75% of the deals, but since our announcement, we were not asked to rate 75% of them," says Tad Philipp, a managing director for Moody's. "Our market share has done a complete flip."
It's obvious here that Moody's feels S&P and Fitch are getting deals because their criteria is more lax -- which may or may not be the case -- but it seems pretty clear that Moody's tighter guidelines are hurting its bottom line in terms of participation in commercial securitizations. The WSJ story cites unnamed analysts as saying that "since the lower-rated bonds needed to increase subordination levels are more expensive, Moody's move could trim profit margins for CMBS issuers." It's an interesting story, because it highlights gaps in the notion that the ratings agencies operate independently in the ratings process, an idea that gets bandied about quite a bit when we're talking about who's to blame for what's been taking place in the residential mortgage markets. You rarely will see one rating agency move without doing so in concert with the other majors -- and in the cases where it does happen, you get a glimpse at the sort of "free market" dynamics that should lead some to question what sort of independence we're really talking about here.