Financial Professionals say Credit Rating Agencies are Often Inaccurate and too Slow to React; Call on Securities and Exchange Commission to Increase Oversight

Association for Financial Professionals survey: Six months or longer often elapses before credit rating agencies reflect changes in a company's financial situation

NEW ORLEANS, LA -- NOVEMBER 5, 2002 -- A recent survey conducted by the Association for Financial Professionals (AFP) finds that many financial professionals believe credit ratings are often inaccurate and slow to reflect changes in company finances. As a result, AFP urges the SEC to focus on its oversight of rating agencies.

According to the survey, 29 percent of practitioners who work for companies with rated debt believe that their company's ratings are inaccurate. In addition, only 40 percent of these practitioners believe that changes in their company's ratings are timely. 

More than one quarter of respondents whose companies have experienced a downgrade report that it took more than six months for their rating to be downgraded to reflect an adverse financial change. Ratings upgrades take even longer, with 57 percent of respondents from companies that have seen their debt upgraded reporting that the change took place more than six months after a positive changes in their company's financial position.

"Given the importance of credit ratings, the number of respondents who believe that credit ratings are not accurate or timely is unacceptable," said Jim Kaitz, AFP's president and CEO. "Because of the key role credit ratings play in the capital markets, our members believe that the SEC must act to improve its oversight of the agencies and clear the way for additional competition."

Other findings of the survey:

• Treasury and finance corporate practitioners are more likely to believe that their company's ratings are reflective of the industry in which their company operates rather than of the company's financial performance.
• Despite the fact that rating agencies are supposed to support the information needs of investors in debt, relatively few treasury and finance professionals believe the ratings favor the interests of investors.
• A majority of treasury and finance professionals believe that it is appropriate for the SEC to identify "acceptable" rating agencies. Ninety percent believe the SEC should take additional action to improve its oversight of the agencies and foster greater competition. Currently, three rating agencies, Moody's, Standard & Poor's, and Fitch, are the only nationally recognized statistical rating organizations (NRSROs).

The survey was conducted in September 2002 via email to senior-level AFP practitioner members and prospects, as well as AFP associate members working for banks.

The Association for Financial Professionals in Bethesda, Maryland, supports more than 14,000 individual members from a wide range of industries throughout all stages of their careers in various aspects of treasury and financial management.  AFP is the preferred resource for financial professionals for continuing education, financial tools and publications, career development, certifications, research, representation to legislators and regulators, and the development of industry standards.