Mr. Chris Mahoney
Group Managing Director
Moody's Investor Services
Mahoneyc@moodys.com

Mr. Michael Foley
Managing Director, Corporate Finance
Moody's Investors Service
Michael.Foley@moodys.com

Via e-mail

Dear Mr. Mahoney and Mr. Foley:

The Association for Financial Professionals (AFP) welcomes the opportunity to comment on Moody's proposal to enhance its analysis of liquidity risk in the commercial paper (CP) market. The proposal would expand Moody's research into issuers' alternate sources of liquidity, which is already a consideration in Moody's assignment of its Prime ratings. The proposal would communicate the findings of this expanded research to investors by placing Prime-rated CP issuers' along a continuum.

AFP represents almost 14,000 treasury and finance professionals employed by over 5,000 corporations and other organizations. Organizations represented by our members are drawn generally from both the Fortune 1000 and middle-market companies in a wide variety of industries. These organizations issue and invest in significant amounts of commercial paper. Our members have an active interest and sizable stake in the methodology employed by rating services.

A number of factors have contributed to reduced liquidity for corporations. Banks have been merging, aggressively managing their credit exposure, and increasing their focus on the profitability of customer relationships, all of which have reduced the amount of credit available to corporate borrowers. Many corporations have been experiencing reduced operating cash flows due to the slowing economy and industry-specific events, including the California energy crisis and a rapid decline in technology spending. In addition, there has been instability in the credit markets during the past several years due to the Asian financial crisis and concerns about the Year 2000 changeover.

As a result of this reduced corporate liquidity and credit market instability, the financial markets view companies as more likely to draw on their credit lines than in the past. Banks have reacted to these changes by adding clauses and covenants to their agreements with borrowers that could provide the bank with an escape from funding a committed line or limit a company's ability to draw on the line during certain time periods. This has understandably caused great concern among purchasers of commercial paper, particularly in the A2/P2 sector, who expect these lines to give the CP issuer access to liquidity to repay maturing obligations if it cannot generate sufficient internal liquidity.

An issuer's access to alternate liquidity is one of many factors that Moody's currently considers when assigning its Prime ratings. During the current year, however, defaults by Southern California Edison and Pacific Gas and Electric have brought into question the quality of issuers' alternate sources of liquidity.

We support Moody's proposal for enhanced liquidity risk analysis. An expanded analysis of the quality of the sources of internal and external liquidity available to CP issuers would provide valuable and necessary information to investors. We recommend that Moody's communicate this information to investors with a modifier to its existing short-term rating structure (e.g., P1+, P1, P1-). Conveying this enhanced information to investors using a new, separate rating structure that must be consulted in addition to the Prime ratings may confuse rather than enlighten investors.

Confidence in the commercial paper market is key to ensuring that corporations have access to this important source of liquidity. Including an enhanced liquidity analysis review process in Moody's assignment of modified Prime ratings will improve the quality of information available to investors and increase investor confidence in this vital financial market.

We appreciate the opportunity to comment on this issue. Please call Jeff Glenzer of AFP at (301) 961-8872 if you have any further questions on the Association's position.

Sincerely,