Credit Rating Agencies

European Commission Report on Credit Rating Agencies Regulation

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On October 19, 2016, the European Commission published a report (COM(2016) 664 final) responding to reporting obligations set out in Regulation 1060/2009 (CRA Regulation).

The report:

  • Analyzes references to external credit ratings in EU legislation and in private contracts among parties in financial markets.
  • Assesses potential alternatives to external credit ratings that are currently used by market participants in the EU. The Commission is of the view that there are currently no feasible alternatives that could entirely replace external credit ratings.
  • Evaluates the impact of the CRA Regulation on governance and internal procedures of CRAs, in particular the prevention of conflict of interests and the use of alternative remuneration models.
  • Analyzes the provisions relating to structured finance instruments (SFIs) and their potential extension to other asset classes. The Commission does not think it is appropriate to extend CRA Regulation provisions to other financial products.
  • Assesses the impact and effectiveness of the CRA Regulation’s measures concerning competition in the credit rating industry. Given some provisions are still in the process of implementation, the Commission will continue monitoring the development of the market before considering the adoption of further measures. More generally, the Commission will seek to avoid and further reduce regulatory barriers to market entry.
  • Considers the feasibility of establishing a European CRA for the assessment of sovereign debt and a European credit rating foundation for all other credit ratings. The Commission considers there to be no need at present for a European CRA specialized in sovereign debt or for other credit ratings.

Council of the EU Mandatory Rotation Rule for Credit Rating Agencies

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On May 21, the Council of the European Union agreed on a draft proposal that would introduce a mandatory rotation rule requiring issuers who pay credit rating agencies to rate their structured finance products with underlying resecuritized assets to switch to a different credit rating agency every four years. The proposal would also require issuers to engage at least two different credit rating agencies to rate structured finance products. The mandatory rotation would not apply for structured finance products rated by small credit rating agencies, or to issuers employing at least four credit rating agencies each rating over 10% of the total number of outstanding rated structured finance products.  EU Release. 

Landesbank Baden-Wuttenberg Files $455 Million RMBS Suit Against Countrywide

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On March 29, 2012, German bank Landesbank Baden-Wurttemberg (“LBW”) filed a suit against Countrywide Financial Corp. and related entities in the Supreme Court of the State of New York alleging that Countrywide misrepresented the underwriting standards and appraisals for the loans underlying $455 million of RMBS allegedly purchased by LBW in eleven offerings between 2005 and 2007. LBW further alleges that Countrywide misrepresented information to credit rating agencies resulting in faulty ratings, misrepresented that the issuing trusts possessed good title to the underlying loans, and ignored underwriting deficiencies by other originators whose loans it purchased. LBW alleges claims for fraud, aiding and abetting fraud, negligent misrepresentation, successor and vicarious liability, and violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. LBW seeks unspecified money damages and rescission.  Complaint.

Rating Agency Developments – Week of February 21, 2012

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On February 15, Fitch updated its criteria for consumer ABS in Latin America. Fitch Report.

On February 10, S&P requested comments by April 6 on its proposed methodology for rating securities backed by imputed promises which do not have plainly stated promises for repayment of principal and/or interest within a specific time period. S&P Release.

Note: Free registration is required for Fitch and S&P releases and reports.

Rating Agency Developments – Week of February 13, 2012

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On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.

On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.

On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.

On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.

Rating Agency Developments – Week of February 6, 2012

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On February 3, Fitch updated its global criteria report for non-performing loan transactions. Fitch Report.

On February 2, DBRS released its methodology for North American CRE non-performing loan liquidating trusts. DBRS Report.

On February 1, DBRS released its methodology for Canadian HELOCs. DBRS Report.

On January 31, Fitch updated its private student loan ABS criteria. Fitch Report.

On January 31, Fitch answered frequently asked questions about UK RMBS master trusts. Fitch Report.

On January 30, Fitch updated its criteria on legal uncertainty in emerging market securitizations. Fitch Report. 

On January 30, Moody’s released its methodology for municipal bonds and commercial paper supported by a borrower’s self-liquidity. Moody’s Report.

On January 30, Moody’s released its pre-2005 RMBS surveillance methodology. Moody’s Report.

On January 30, DBRS released its methodologies for Canadian auto lease and auto loan securitizations. DBRS Auto Lease Report. DBRS Auto Loan Report.

On January 26, S&P gave advance notice of proposed changes to its U.S. local government general obligation bond criteria. S&P Report.

*Note: Free registration is required for Fitch, Moody’s, and S&P reports.

Rating Agency Developments – Week of January 30, 2012

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On January 25, Fitch updated its global dealer floorplan rating criteria. Fitch Release.

On January 24, DBRS released its CMBS rating methodology. DBRS Release.

On January 23, S&P updated its U.S. interest rate criteria to include assumptions for the five-year CMT Index. S&P Release.

On January 23, DBRS released its U.S. RMBS securities loss model and rating methodology. DBRS Report.

On January 23, DBRS described its U.S. RMBS surveillance process. DBRS Report.

*Note: Free registration is required for Fitch and S&P reports.

Rating Agency Developments – Week of January 23, 2012

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On January 18, Fitch updated its short-term rating criteria for non-financial corporates. Fitch Release. Fitch Report.

On January 17, S&P requested comment on proposed changes to methodologies and assumptions used to rate fully and partially credit-enhanced multiseller ABCP conduits. Comments must be submitted by March 31. S&P Release.

On January 17, S&P requested comment on its European SME CLO methodology and assumptions. Comments are due by February 24. S&P Release.

*Note: Free registration is required for all Fitch and S&P reports.

Dexia Sues JPMorgan for RMBS Losses

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On January 19, 2012, Dexia SA/NV and related entities filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities in connection with certificates in 53 RMBS offerings that Dexia allegedly purchased from JPMorgan, Bear Stearns, and Washington Mutual for approximately $1.7 billion. Dexia alleges that the defendants created, issued, and sold RMBS based on loans that the defendants knew to be of poor quality, made false and misleading representations about those loans to investors, and exerted undue pressure on credit rating agencies. Dexia asserts claims for negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement, and seeks rescission and damages. Complaint.