The LSTA submitted a comment letter this week on a recent hearing held in a subcommittee of the House Financial Services Committee. The hearing, hosted last week, was entitled, “Bond Rating Agencies: Examining the ‘Nationally Recognized’ Statistical Rating Organizations,” and it examined the performance of credit rating agencies since the financial crisis while highlighting several pieces of related legislation.
One of these bills – the “NRSRO Reform Act” – aims to correct the perceived conflicts of interest in the issuer-pay model by creating a Credit Rating Agency Assignment Board under the Securities and Exchange Commission, which would assign credit rating agencies to issuers.
The LSTA opposes this legislation. We do not believe there is much evidence for the issuer-pay model creating significant conflicts of interest – especially in the markets for syndicated corporate loans and CLO tranches – and we believe that the proposed alternatives would create more problems than they would solve.
To address these concerns in detail, we submitted a letter this week to Reps. Brad Sherman and Bill Huizenga, the chairman and ranking member of the subcommittee, respectively.