Moody’s

  • 28 May 2009 at 12:03 PM

Ira Sohn Conference

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einhornseaglescouts.jpgWe are sure you’re like us and just skip to the David Einhorn section when it comes to the Ira Sohn Conference notes that Zero Hedge has posted, courtesy of BTIG’s Mike O’Rourke. Here’s the take on Einhorny:

The theme of Davd Einhorn’s presentation was the curse of the AAA. Obama administration is following the same policies of the Bush Administration. The administration is reflating the economy back to 2006 levels. For the economy to recover underwater entities need to restructure their debt. The willingness for banks to negotiate in this environment depends upon where the positions are marked. The Obama loan modifications lack the most important aspect of restructuring: debt reduction. The debate in the banks was too narrow with only two options discussed- Nationalizing versus Taxpayer Bailout. There is a 3rd option, debt or preferred equity conversion to common equity. Attempt to induce debt of equity conversions without creating a downdraft in the group. Banks are not materially more solvent today than they were two months ago. Regulatory forbearance has created this rally in banks. We should be overcapitalizing the banks and direct them to restructure the debt of their borrowers. The Government spending and guarantees put the U.S. AAA credit rating at risk. US debt needs to be managed responsibly.

Einhorn goes on to nuke Moodys, his short. Good play!
Ira Sohn Conference Notes [Zero Hedge]

  • 22 Apr 2009 at 11:21 AM

Presented Without Comment: Just In Time

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Financial Analysis of Local Governments (New!)
This seminar provides an in-depth workshop on the financial statements seen in U.S. public finance. With real-world case studies, delegates will learn where to find information in an audit, what the line items mean, and key ratios and trend analysis used by Moody’s analysts. It focuses on local governments and K-12 school districts.

Fin Analy Local Gov-NA09.pdf [Moody's]

  • 10 Mar 2009 at 12:20 PM

Speculation, However Informed….

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Consider for a moment this quote from Eastman Kodak:
“Any speculation, however informed, suggesting that Kodak is less than financially sound, is irresponsible….”
What’s the message here? That responsible speculators (whatever that means) are universally bulls? That the mere hint of bearishness is some sort of un-patriotic essence of evil?
Kodak was responding, of course, to their recent inclusion on Moody’s “Bottom Rung” list. The Wall Street Journal explains, along with a quick definition of “default,” just in case you needed a reminder:

The Moody’s Corp. unit rates debt of 2,073 companies, sizing up each one’s ability to pay what it owes. The Bottom Rung, which Moody’s will update monthly, represents roughly the riskiest 15% of all companies it tracks.
Moody’s estimates about 45% of Bottom Rung companies will default on debt in the next year. Combined, these companies have more than $260 billion in bond and bank debt. A default ranges from filing for bankruptcy to a distressed debt-exchange to missing a debt payment.

This is, of course, an attempt to dispel the appearance of what, in recently popular terminology, has come to be known as “agency capture.” The slavish reluctance of the ratings agency to offend the firms it rates. Insofar as transparency is universally the enemy of miasma driven rallies, we are interested to see how far any ratings agency gets with a re-branded “credit dead pool” before ratings inflation takes hold again.
There is little public relations up-side in predicting failure right now. (See e.g., John Paulson). Like the business of intelligence, which gets little credit for successes and all the blame for failures, ratings agencies both have a (mostly deserved) badly tarnished reputation and a similar Catch-22 dynamic. What failing firm will not blame the ratings agency (which may well have been spot on in predicting default) for causing an inevitable crash? Who could prove otherwise after the fact?
If nothing else, Kodak has the pulse of the nation at the moment. Even the Journal falls for the trap:
“Yet Moody’s is pushing into a gray zone, singling out some firms that say they’re in decent fiscal health.”
As opposed to firms insisting they aren’t in decent fiscal health? What does that list look like?
Calling a company the walking dead is intensely unpopular right now and the bright-red, freshly burned “Speculator” brand on the forehead is the scarlet letter of the day. Moody’s, indeed any ratings agency, might be between a rock and a hard place here.
Moody’s Aims to Be Ahead on Defaults [The Wall Street Journal]