Courtesy of Mish.
Moody’s vs. S&P Rating of Chicago
On May 12, Moody’s downgraded Chicago’s GO bonds to Junk.
I commented on that downgrade in Moody’s Cuts Chicago Bond Rating to Junk; City Faces $2.2 Billion in Various Termination Fees; Irresponsible to Tell the Truth.
On May 14, S&P Downgraded Chicago General Obligation Bonds from A+ to A-. That rating is three levels above junk.
Two Questions
- Why was the S&P slow in the downgrade?
- Why does Moody’s rate Chicago as junk while the S&P rate Chicago three levels higher than junk.
Rate Shopping Whores
The answer to both questions is rate shopping.
Mark Glennon at WirePoints explains S&P, slated to rate upcoming Chicago bond sale, goes comparatively easy on downgrade. Hmmm.
“Chicago plans to price offerings of $201 million and $182 million on May 19, as reported yesterday by Bloomberg. And guess who is one of the two agencies slated to rate new the offering, hired by the city? You take it from here. What a system.”
Origin of Rate Shopping
It did not use to work like this. And I have been harping about the underlying problem for years. A good starting point is my September 28, 2007 post Time To Break Up The Credit Rating Cartel….
