NEW YORK, July 15 Standard & Poor's on Thursday cut its commercial paper rating on its rival Moody's Corp (MCO.N) by one notch, saying business risk has increased with passage of financial reform legislation by the U.S. Congress.
S&P cut Moody's commercial paper rating one notch to A-2, the third highest ranking, from A-1.
"The legislation will likely result in a greater instance of defending against litigation and other changes in operating practices that will likely increase operating costs and thereby reduce profitability and margins," S&P said in a statement.
Congress on Thursday approved the broadest overhaul of financial rules since the Great Depression, which will tighten regulations across the financial industry. For details, see [ID:nN15226910]
In particular, the reform measure changes pleading standards so that investors may be able to sue a rating agency if they can show it failed to investigate facts relied upon in ratings or verify the facts from a third-party source.
"Moody's management has stated that it plans to adapt its business practices in an effort to partially offset any potential new litigation risks," S&P said.
"Nevertheless, we believe that Moody's will likely face higher operating costs, lower margins, and increases in litigation-related event risk that we believe may present risks to the company's reputation," the rating agency said.