SAN FRANCISCO Feb 14 Moody's Investors Service
said on Thursday it lowered the McGraw-Hill Companies Inc's
senior unsecured rating to Baa2 from A3, because of litigation
risks after high-profile lawsuits filed against the company and
its Standard & Poor's Financial Services LLC subsidiary.
In one of its most ambitious lawsuits tied to the financial
crisis, the U.S. government is seeking $5 billion, accusing
Standard & Poor's of a scheme to defraud investors.
McGraw-Hill earlier this week fired back at the lawsuit,
saying the government had no case. The company said the rating
agency had a record of successfully defending itself against
suits like the one by the U.S. Department of Justice accusing it
of duping investors by presenting its ratings on mortgage
products as objective.
The government contends S&P inflated ratings and understated
risks as the housing bubble started to burst to gain more
business from investment banks that issued mortgage securities.
McGraw-Hill also is fending off legal challenges from
Moody's, which is a competitor of Standard & Poor's, said in
a note its downgrade concluded a review for downgrade initiated
in September 2011 and reflected concerns about "heightened
litigation risks" in light of the recent civil lawsuits.
Moody's also cited the "loss of earnings and business
diversity" from the expected completion of the $2.5 billion sale
of McGraw-Hill Education to investment funds managed by
affiliates of Apollo Global Management LLC.
Moody's said McGraw-Hill's Prime-2 short-term rating for
commercial paper was not affected by its action, adding that its
ratings outlook on the company was negative.
The outlook "reflects the potential for additional adverse
litigation and regulatory developments and the resulting
uncertainty created for McGraw-Hill's operations and financial
"An upgrade is unlikely in the foreseeable future given the
ongoing litigation and regulatory risk," Moody's said. "The
rating outlook could be changed to stable if litigation and
regulatory risk diminishes, provided that McGraw-Hill also
maintains solid market positions in its businesses, a
conservative leverage profile, good free cash flow, and a strong
Moody's also said: "A significant decline in operating
performance and cash flow generation, substantial acquisitions
or shareholder distributions, or a deterioration of the
company's liquidity position could create downward rating
pressure. Adverse litigation or regulatory developments could
create material downward rating pressure."