Moody's computer error shaped ratings: report

By John Spence, MarketWatch

Last Update: 8:57 AM ET May 21, 2008

BOSTON (Menafn - MarketWatch) -- A coding error at Moody's Corp. boosted the investment ratings of a particular class of debt instrument and wasn't immediately corrected after it was uncovered, according to a published report.

The ratings agency MCO mistakenly gave triple-A ratings to billions of dollars worth of debt products but didn't lower the ratings after the computer bug was discovered in early 2007, the Financial Times reported, citing Moody's internal documents.

Ratings agencies such as Moody's, Standard & Poor's and Fitch have come under fire during the credit storm after triple-A rated debt instruments that contained subprime mortgages and other risky debt imploded.

Moody's computer glitch involved a relatively new instrument, called constant-proportion debt obligations, according to media reports.

On Tuesday, Moody's said it was examining its ratings policies in European CPDOs in response to the story, The Wall Street Journal reported.

"Moody's has adjusted its analytical models on the infrequent occasions that errors have been detected," Moody's said in a statement. "It would be inconsistent with Moody's analytical standards and company policies to change methodologies in an effort to mask errors." See full story at WSJ.com.

Moody's media desk in New York didn't immediately return a message left Wednesday morning.

The CPDOs kept triple-A ratings after Moody's discovered the coding error, until they were downgraded several notches earlier this year, according to the FT.