~~~~”Morningstar Inc., the research firm known for its mutual-fund analysis, is now wading into the controversial realm of credit ratings.
The firm on Wednesday for the first time published credit ratings on about 100 companies using a similar alphabetical scale to major credit-ratings services like Standard & Poor’s, Moody’sCorp.’s Moody’s Investors Service and Fimalac SA’s Fitch Ratings.
Morningstar picked some of the biggest U.S. companies, awarding Microsoft Corp. the highest triple-A level, while rating Royal Caribbean Cruises Ltd. a junk rating of single-B-minus.
“We can do ratings,” said Catherine Odelbo, president of equity research at Morningstar.
Morningstar is seizing on a moment of perceived weakness for the big credit-rating companies, whose poor ratings were blamed for inflaming the credit crisis. At the same time, regulators and lawmakers have been seeking to encourage new entrants into the business.
“We believe that all market participants benefit from healthy competition based on the quality of credit opinions,” said a Moody’s spokesman. Fitch and S&P, a unit of McGraw-Hill Cos., declined to comment.
Moody’s, S&P and Fitch have been criticized by regulators and lawmakers over the rosy ratings they gave to securities, particularly of mortgage-related products. Among the biggest criticisms: that credit-rating companies are paid by the issuers who rate the securities, potentially creating conflicts of interest.
Morningstar is taking small initial steps, tapping its equity-research analysts to do the credit research. They will follow a ratings methodology that the firm has spent a year developing, Ms. Odelbo said. So far, Morningstar has hired two credit-research specialists and the firm plans to hire 10 more in the coming months, building the number of rated companies to 1,000 within six months, she said.
Morningstar won’t charge companies or investors for access to the ratings, but will charge for any accompanying research, Ms. Odelbo said. The firm is also sticking to corporate ratings, steering clear of individual bond issues and the structured products that were at the center of the credit crisis.
Stock-market investors reacted positively to the news, pushing the company’s shares up $1.08 a share, or 2.3%, to $48.10 on Wednesday.
Morningstar is moving into an area that many others have failed to crack. While the Securities and Exchange Commission has given its seal of approval to 13 firms to bestow official credit ratings on debt, few have made inroads. The company will also face competition from independent research firms like CreditSights Inc. or Gimme Credit LLC that offer analysis, though not ratings.
While Congress has pushed for more competition in the business of credit ratings, not everyone is convinced that it will help make ratings more accurate. For the major ratings firms that require companies to pay for their ratings, competition could mean they are friendlier to issuers to get more business, said Bo Becker, a professor at Harvard Business School.
But, he adds that for a company with no plans of charging issuers, “this is a good time to enter the business.”
Morningstar doesn’t plan to apply for official credit-rating status because the rules and regulations are in flux, said Ms. Odelbo.
“The ground is uncertain and shifting,” she said….”~~~~