Moody's, McGraw-Hill Soar; Firms `Back From the Dead'

Sept. 27 (Bloomberg) -- Moody's Corp. and McGraw-Hill Cos. soared to the highest in more than a month in New York Stock Exchange trading on speculation their credit-rating units won't face penalties for their role in the subprime-mortgage crisis.

Moody's, the parent of Moody's Investors Service, gained $2.98, or 6.3 percent, to $50.37. McGraw-Hill, owner of Standard & Poor's, rose $2.36, or 4.7 percent, to $52.09.

Officials at Moody's and S&P, the two largest credit rating companies, appeared before the Senate Banking Committee yesterday to face criticism that they had inflated credit ratings given to subprime securities to win more business, helping fuel a surge in lending to people with poor credit. Their presentations helped convince investors the companies will successfully defend themselves against any claims.

``The rating agencies are coming back from the dead,'' said Edward Atorino, an analyst with Benchmark Co. in New York. ``Representatives from Moody's and S&P did an outstanding job before Congress explaining how the rating process works. Worries that the rating agencies are going to be found to have been complicit in the subprime meltdown are fading.''

New York-based Moody's was down 31 percent before today and McGraw-Hill was down 27 percent, partly because of concern the companies may be found liable for losses incurred by investors as subprime securities slumped.

Lawmakers on the Senate committee chastised S&P and Moody's for waiting too long to downgrade subprime bonds. Some of the securities had fallen more than 50 cents on the dollar before any ratings downgrades, as defaults on the underlying mortgages rose.

`No Evidence'

S&P Executive Vice President of Credit-Market Services Vickie Tillman, and Michael Kanef, group managing director, asset finance group, of Moody's Financial Services disputed claims that they understated the risk of subprime mortgages to ensure issuers continued to pay for ratings services.

``There is no evidence, none at all, to support this contention with respect to S&P,'' Tillman told the hearing.

S&P doesn't structure debt transactions, and the company's criteria for ratings are ``absolutely transparent,'' Tillman said. There isn't any collaboration between S&P and debt issuers on constructing mortgage-backed securities, she said.

``We have an open dialogue with investment bankers,'' Tillman said. ``We don't tell them how to make it better. That's up to them.''

In his prepared testimony, Kanef of Moody's said the company has ``successfully managed related conflicts of interest and provided the market with objective, independent and unbiased credit opinions.''