CHICAGO - Moody's Investors Service says under certain circumstances it will put out a comment or a rating on a debt issue in which the issuer has not applied for a rating.

The policy has been dormant until now at the rating agency, but will be implemented in the future, Daniel Heimowitz, executive vice president and director of public finance at Moody's, said this week.

"It's pretty clear to us that in a few cases where we didn't have a rating, the number of calls we got reiterates to us that the market wants to hear what we say," Heimowitz stated. "What we're saying is that on a case-by-case basis, we're willing to express our opinion without an application from an issuer."

Some municipal market participants expressed concerns that such an action could "cheapen" the value of a Moody's rating or lead to disclosure problems that could cause investors to drop their orders for debt or affect pricing in secondary market trading.

Heimowitz stated two reasons why Moody's would issue an unrequested rating or comment.

One is if the debt issue has parity or has some bearing on the ratings on other debt Moody's does rate.

The other is if "there is broad investor interest and we feel the market would be interested in hearing our opinion," Heimowitz said.

If we're serving the investor, the investor likes to know our opinion," he said. "We're not a marketing tool for underwriters, but a credit evaluation service for investors."

Heimowitz pointed to the $1.1 billion San Joaquin Hills, Calif., Transportation Corridor Agency toll road deal sold in March that ended up being rated only by Fitch Investors Service, which assigned a BBB rating to the deal.

He said Moody's had preliminary discussions with officials involved in the deal, but those officials concluded a Moody's rating would not be in their "best interest."

"We got more calls on our nonrating," Heimowitz said. "If something like that comes out again, we may have a rating or a comment."

Walter Kreutzen, executive vice president of finance and administration at the San Joaquin Hills agency, said that while the agency started the rating process with Moody's early on, "Moody's could not get comfortable with the computer-generated revenue stream and as a result did not think it could get to an investment grade rating."

Kreutzen said that "both parties" stopped the process at that point.

Moody's policy sets it apart from two other major rating agencies, in that Moody's is willing to go beyond just commenting on an issue. Moody's would issue an unrequested rating even if the rating agency has not rated that particular issuer before.

Vladimir Stadnyk, a managing director at Standard & Poor's Corp., said 100% of the agency's ratings have been done on request. He said that the only situation in which the agency would issue an unrequested rating would be if there is parity between the debt being issued and outstanding debt that Standard & Poor's already rates.

However, Standard & Poor's will comment on deals that are "significant to the market" as it did with the San Joaquin toll road financing, Stadnyk said.

In late February, Standard & Poor's issued a comment on the San Joaquin issue that said the agency was not asked to rate the offering, although it had issued a private credit opinion on the deal's original structure to the corridor agency.

After the issue was restructured, Standard & Poor's said it reviewed the preliminary official statement and commented on "weaknesses" that it found.

Alan Spen, managing director of the revenue group at Fitch Investors Service, said he did not believe it is Fitch's "philosophical policy to do ratings without a request."

"I think it would be a rarity," Spen said. "I can't think of a situation where we would do it or would be likely to do it."

Heimowitz said examples like the San Joaquin toll road deal "leads us to reiterate" that Moody's reserves its "option" to comment on or rate deals that have not applied for ratings.

He also said the agency is "always mindful of protecting the credibility and integrity of the rating by making sure it doesn't get shopped by issuers. We're rating for investors."

Robert D. Pulscher, president and chief executive officer of Springsted Inc., a Minnesota-based financial advisory firm and president of the National Association of Independent Public Finance Advisors, said he would be "upset" if Moody's issued a rating without being asked.

"It's none of their business," he said. "If no application is made, I'm not sure how they would get all the facts."

However, Pulscher expressed confidence that Moody's would not issue an unrequested rating or comment on "a half-baked basis."

Still, he said the industry would be concerned about the impact on secondary market trading of a rating or a comment made after an issue is underwritten or on investors' willingness to maintain their order to buy the debt.

"If they do this after an issue is sold, it won't serve anyone well." Pulscher said. "It should be done prior to the sale of an obligation."

Market observers said that Moody's will have to walk a fine line between the perception of giving away free ratings and its responsibility to inform investors.

John J. O'Brien, president of O'Brien Partners Inc. in New York City, a financial advisory firm, expressed surprise at Moody's position.

"[Moody's] reputation is based on its rating," said O'Brien. "They're not going to do anything frivolous. But if they do it for nothing, God bless them, it will save our issuers a lot of money."

Heimowitz said if Moody's does issue an unrequested rating, it would be put out before the bonds are sold.

"It would not be done in a vengeful or surprising way or certainly ever to disrupt the process of closing," he said, adding there is only a "rare" potential for such action on the part of Moody's.

Heimowitz said that most preliminary rating discussions with issuers turn into official rating applications; Moody's rates 93% of the volume in the municipal market, he said.

Richard Ciccarone, a senior vice president and director of tax-exempt fixed-income research at Kemper Securities Inc., said while unrequested ratings are done on corporate debt, he questioned whether the practice in municipal debt would "cheapen" the ratings by making some free. "It's kind of radical when you think about it," he said.

But Ciccarone said he was not surprised by the Moody's statement.

"Shopping is not a good situation for our marketplace," he said. "However, the market is fairly smart. If it feels ratings are inflated because of issuers shopping around, that will dilute the impact of ratings down the road and open the door to more independent research."

Other professionals said they felt that rating shopping is not a problem.

Vincent A. Matrone, senior vice president and managing director of Rauscher Pierce Refsnes Inc. in Dallas, said some investment bankers may feel that one rating agency "has a better grasp of a particular market sector as opposed to the other agency" and may decide to seek only one rating.

Matrone also defended Moody's policy statement.

"One of the things rating agencies must maintain is their credibility with the investing public," Matrone said. "If investors want to know their opinion about a particular issue or structure, they have a responsibility to respond. They're the honest broker with the investing public."

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