Posted on 17 Oct 2011
Three of the nation’s leading credit rating firms will give Connecticut a $900,000 discount on future services to settle claims that they gave artificially low credit ratings to its cities and towns, the state’s attorney general said Friday.
State officials who filed the lawsuits against Moody’s Investors Service Inc., Standard & Poor’s, and Fitch, Inc. in July 2008 alleged the low ratings ultimately cost taxpayers millions of dollars in unnecessary insurance and higher interest payments.
The office of Attorney General George Jepsen said the rating agencies denied violating any laws but agreed to the settlements to avoid litigation.
S&P is satisfied to have the issue resolved, agency spokesman Edward Sweeney said.
“We are pleased to have reached an amicable resolution with the state of Connecticut and look forward to rating the state’s future bond offerings,” he said.
Moody’s is also pleased “to resolve this matter without costly and protracted litigation,” spokesman Michael Adler said.
Fitch spokesman Daniel Noonan said: “This settlement reflects our strong belief that Fitch’s ratings were fair and transparent, and we are pleased to resolve this matter.”
The lawsuits were filed by officials including Richard Blumenthal, the former state attorney general, who now represents Connecticut as a Democratic U.S. senator. The suits alleged the agencies established a dual ratings system that gave lower credit ratings to bonds issued by states, municipalities and other public entities than corporate debt, even though the agencies’ own studies found public bonds were more likely to be paid back than corporate bonds.
The $900,000 discount included in the settlement will go toward the cost of obtaining future credit ratings on sales of Connecticut state bonds.
As part of the settlements, Moody’s, S&P and Fitch also agreed to meet with public bond issuers in Connecticut to explain the factors that go into rating public bonds, Jepsen said.
The attorney general also credited the agencies with making significant changes to the process by which they rate publicly issued bonds. His office said the reforms have led to higher credit ratings — and lower interest rates — for many Connecticut cities and towns, which will save millions of dollars over time.
Connecticut still has lawsuits pending against Moody’s and S&P that are related to alleged misrepresentations the companies made about their analysis of structured finance securities. Those lawsuits, filed in Connecticut Superior Court in March 2010, were not affected by the settlements announced Friday.