Connecticut Attorney General Issues Subpoenas To Three Major Debt Rating Agencies In Antitrust Investigation

October 26, 2007 -- Connecticut Attorney General Richard Blumenthal today confirmed that his office has issued subpoenas to the three largest debt rating agencies as part of an antitrust investigation into the commercial debt rating industry.

Blumenthal sent the subpoenas October 10 to Standard & Poors, Moody's Investor Services and Fitch Ratings Service. Standard & Poors and Moody's control about 80 percent of the debt rating market -- assessments of corporate, bank, mortgage, government and other borrowers' ability to pay back a given loan.

" My office has issued subpoenas as part of an investigation into possible anticompetitive practices in the debt rating industry," Blumenthal said. "The debt rating industry is a highly concentrated market controlled by a handful of companies. Commercial credit raters occupy an essential position in the debt market. Without a good credit rating, many loans cannot be made. My investigation seeks to determine whether credit rating agencies may be exploiting their dominant positions to unfairly raise prices or exclude competitors. Assuring debt ratings are honest and untainted is vital to investors, companies and government.

" I will vigorously and aggressively enforce Connecticut's antitrust laws if my investigation uncovers evidence of anticompetitive activity."

The focus of Blumenthal's antitrust investigation includes:

* So-called "unsolicited" ratings in which an agency rates an issuer's debt against its wishes. There are allegations that some raters conduct an unsolicited rating and then demand the issuer pay for it or face a possible poor rating.

* So-called "notching" in which raters allegedly threaten to downgrade an issuer's debt unless they receive a contract to rate the issuer's entire debt pool, even if parts already have been assessed by another agency.

* Exclusive contracts under which issuers receive discounts for having all their debt rated by a single agency. Such agreements may hinder competition by locking out other debt raters.

* Whether raters sought to maintain their dominant market positions by providing higher debt ratings requested by debt issuers.

Source: Connecticut Attorney General

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