A coding error at Moody's Investors Service of New York gave incorrect triple-A ratings to billions of dollars’ worth of debt products and wasn't immediately corrected after it was uncovered, according to the Financial Times.
Internal documents at Moody's show that some senior staff members within the credit-rating agency knew in 2007 that constant proportion debt obligations rated the previous year had received triple-A ratings that were several notches too high and had to be corrected, according to the story.
CPDOs provide investors with an income stream tied to the sale of default protection on companies included in various indexes.
Moody's is also looking into whether methodology changes in the product were tied to the errors, according to a report in The Wall Street Journal.
A spokesman for Moody’s declined to comment on the Financial Times’ report, but said: “Moody’s regularly changes its analytical models and enhances its methodologies for a variety of reasons, including to effect changing credit conditions and outlooks.
“In addition, Moody’s has adjusted its analytical models on the infrequent occasions that errors have been detected.
“However, it would be inconsistent with Moody's analytical standards and company policies to change methodologies in an effort to mask errors.”
Ratings agencies such as Moody's, and Standard & Poor's and Fitch Ratings Ltd., both of New York, have been faulted during the credit crisis after triple-A-rated debt instruments that contained subprime mortgages and other risky debt imploded.
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