Moodys to add new measures to structured ratings

Moody's Investors Service said on Wednesday it would introduce two new measures to address investor concerns about risks to structured finance products' credit ratings, but would not create a separate rating scale.

"These two measures will provide more clarity about the credit characteristics of structured finance ratings," said Michel Madelain, Moody's chief operating officer, in a statement.. "We believe they will provide investors greater insights into the risks of structured finance products."

Ratings agencies have come under fire for unexpectedly sharp downgrades of triple-A rated structured finance bonds and vehicles in the wake of the U.S. subprime mortgage crisis.

As a result, Moody's and its competitors, Standard & Poor's and Fitch Ratings, have been developing plans to respond to investor concerns.

The plans are in line with proposals Moody's made in February, when it said it was considering introducing new ratings that would add information to the traditional scales that look at default risk.

Moody's said it had received more than 200 responses from market participants -- including from investors that together held in excess of $9 trillion in fixed income securities -- which "overwhelmingly rejected the idea of a separate rating scale for structured credit".

GRADUAL INTRODUCTION

The new measures will be gradually introduced towards the end of June and will first be applied to some securitisations of vehicle-backed assets. The ratings agency will roll out similar research for products in other sectors during the second half of the year.

The new Assumption Volatility Score, or V-Score, will assess potential rating volatility based on the uncertainty of rating model assumptions. It will rank transactions on a one to five scale -- ranging from low to high volatility -- with a single score applied to all tranches in the security.

The V score will be derived from factors including historical performance, data adequacy, the complexity and market value sensitivity of a transaction and governance, Moody's said.

"The Assumption Volatility Scores could help signal that subprime RMBS, ABS CDOs and market-value based transactions have greater potential rating volatility than other similarly rated securities, including other types of structured finance instruments," Moody's said in a report.

The second new measurement -- named Loss Sensitivity -- will capture a rating's sensitivity to a change in the expected loss rate on the collateral pool backing the security. It will measure the number of likely rating notch downgrades for a security should the loss rate on a transaction's underlying collateral pool increase to a highly stressed level.

Madelain was named as COO of Moody's, part of Moody's Corp. , in May after the retirement of Brian Clarkson.

(Reporting by Richard Barley and Natalie Harrison; editing by Elaine Hardcastle)