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Bond Accountability Commission 2 Recommendations Page 101

Not everyone was thrilled, however. The California Bond Advisor, a publication directed to retail municipal bond investors, stated on its website 115— According to a Moody’s statement, “Our benchmarking analysis of municipal credits against global scale ratings across the Moody’s rated universe will result in an upward shift for most state and local government long-term municipal ratings by up to three notches.” … The Bond Advisor has commented on this before and lamented losing a century of special guidance for municipal bonds (with “relative” strength being an important factor). We always have noted that muni bonds faced lower default risk than their ratings indicated. The new global scale will reflect this fact, but we believe smaller investors in particular will lose out in evaluating new deals when the change is made. Moody’s says the change isn’t an “upgrade” for existing issues, but rather a move to a new scale. In contrast to Moody’s (and Fitch), Standard & Poor’s (S&P) did not represent, in response to governmental complaints, that it would change its rating approach, asserting instead that it “uses that same rating scale across the structured finance, corporate, and


California Municipal Bond Investor online, “Moody’s to Recalibrate Municipal Bond Ratings to higher levels” (March 16, 2010 (“Fitch ratings will probably follow suit. Standard and Poor’s already is raising its ratings right and left as we noted the other day.”)

BAC2 Recomendations Final 04062010