Law360 | May.01.2013
This article, about an upcoming SEC roundtable to discuss ways to eliminate conflicts among credit rating agencies, quotes New York partner Howard Altarescu.
The SEC has already released a detailed agenda for the meeting, which will include discussion on possible alternatives to the issuer-pays model as well as a proposal to assign credit rating firms to work on particular transactions. An assignment system could eliminate the opportunity for rating agencies and market participants to improperly coordinate their activities, according to the SEC.
But an assignment system could very well backfire, according to Orrick, Herrington & Sutcliffe LLP partner Howard Altarescu, who serves as deputy head of the firm’s global finance business unit. Transactions assigned to small NRSROs — those other than the big three of S&P, Moody's Investors Service and Fitch Ratings Inc. — could turn off bond investors with high standards, he said.
"The rating agencies that are chosen may not be agencies that your investor base is comfortable with or has on the approved list,” Altarescu said. “That doesn't make sense to me."
Altarescu applauded the SEC for holding the round table, saying the agency will benefit from hearing directly from industry participants which alternative compensation models they favor. Still, the SEC could go a long way toward resolving supposed conflicts of interest by simply mandating greater disclosure, he said.
"I understand from experience that over the last five years, many people believe disclosure alone is not sufficient."