Calpers settles suit with Fitch, not Moody's or S&P

SAN FRANCISCO Mon Aug 29, 2011 5:21pm EDT

SAN FRANCISCO (Reuters) - Fitch Ratings settled a lawsuit in which the largest U.S. public pension fund alleged that Fitch and other credit ratings agencies assigned unreasonably high ratings to special investment vehicles, according to a court document filed on Friday.

The California Public Employees' Retirement System (Calpers) sued Fitch, Moody's (MCO.N) and Standard & Poor's in July 2009, alleging that inaccurate ratings caused $1 billion of losses.

Fitch will make no payment under the settlement, Fitch spokesman Daniel Noonan said in an email on Monday.

Calpers spokesman Wayne Davis declined to comment on the terms of the settlement but said it will streamline the case against Moody's and Standard & Poor's.

"Calpers can still fully recover its damages if it prevails against Moody's or S&P," Davis said in an email.

Michael Adler, a Moody's spokesman, said the company continues to believe the lawsuit is without merit and that Calpers' claims will be dismissed.

"We are pleased that the plaintiff has finally begun to focus on the lack of evidence supporting its claims in this case," Adler said.

S&P spokeswoman Catherine Mathis said a previous court ruling established that ratings of SIVs are protected speech. Thus Calpers must demonstrate at an upcoming hearing a probability of success on its merits, Mathis said, and S&P will urge the court to find that Calpers has failed to do so.

Calpers' lawsuit focuses on structured investment vehicles, which are complex packages of loans and debt, including subprime mortgages and collateralized debt obligations, that banks assemble and then sell to investors.

The pension fund contended that it bought $1.3 billion of debt issued by Cheyne Finance LLC, Sigma Finance Inc and Stanfield Victoria Funding LLC, which were SIVs that had received "triple-A" ratings.

Calpers said these ratings were inflated and that it suffered heavy losses starting in 2007 when the investments collapsed in value as credit tightened.

"Fitch is pleased with the resolution of this case and the disposition reached with Calpers," Noonan said.

S&P is a unit of McGraw-Hill Cos MHP.N and Fitch is a unit of France's Fimalac SA (LBCP.PA).

The case is California Public Employees' Retirement Systems v. Moody's Corp et al, Superior Court of California, San Francisco County, No. 09-490241.

(Reporting by Dan Levine; Editing by Robert MacMillan and Steve Orlofsky)

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