As we wrote in our March 11 Crane Data News story "Moody's Finalizes Money Fund Rating Methodology, Leaves Aaa Alone," Moody's new money fund rating methodology goes live today, May 20. (Moody's now says the "migration process will be completed on Monday," May 23.) The change has been accompanied by a flurry of press releases announcing a number of withdrawn ratings. The previous press release entitled, "Moody's finalizes new methodology for money market funds," sent out in March says, Moody's Investors Service has published its new global methodology for rating money market funds.... The new rating methodology reflects experience gained from the tumultuous period in late 2008 when disruptions in short-term funding markets caused market value declines and record outflows from prime money market funds." The final ratings changes reflect an about-face after a firestorm of criticism over Moody's initial proposals, which included abandoning the triple-A scale and heavily weighting parental support in fund ratings. (See also our Sept. 8, 2010, Crane Data News news article, "Moody's Proposes New Money Market Fund Rating Methodology, Symbols," and our Jan. 19, 2011, piece, "Moodys Backs Down From MMF Ratings Change Proposals, Keeps AAA.")
The full paper, "Moody's Revised Money Market Fund Rating Methodology and Symbols," says, "In this report, we present our revised rating methodology for rating money market funds. The analytical framework uses a set of objective measures to assess portfolio credit quality as well as market and liquidity risks in stress scenarios in order to differentiate among funds. In addition, we are introducing a new set of rating symbols and definitions that better address the unique risks of money market funds and distinguish our money market fund ratings from our credit ratings. This new rating methodology is scheduled to become effective on 20 May 2011, and all existing money market ratings will be migrated then to the new rating symbols based on the new methodology."
It explains, "Our revised money market fund rating methodology incorporates market feedback that we received after publishing our Request for Comment on the same subject in September 2010. Once effective, the new methodology will supersede the following principal methodologies as they apply to money market funds: "Moody's Managed Funds Credit Quality Ratings Methodology" and "Moody's Money Market and Bond Fund Market Risk Ratings", both published in 2004."
Moody's new Rating Methodology continues, "The introduction of Moody's revised money market fund methodology reflects experience gained from the tumultuous period in late 2008 when disruptions in short-term funding markets caused market value declines and record outflows from prime money market funds. During this period, a large money market fund -- The Reserve Primary Fund -- 'broke the buck' and suspended redemptions together with funds managed by the same fund family. Many other funds experienced stress within their portfolios and elevated redemptions at the same time, heightening systemic risk. Ultimately, support from the US Treasury, via the introduction of a guaranty fund for money market fund investors, served to stem investor outflows and prevent a disorderly unwind of money market funds."
Over the past several days, Moody's has withdrawn the ratings on a host of money funds. Press releases were sent out entitled, "Moody's withdraws rating of Williams Capital Government Money Market Fund," "Moody's withdraws ratings of two Milestone Money Market Funds," "Moody's withdraws rating of Federated Short-Term Euro Money Market Fund," "Moody's withdraws rating of [Invesco] Short-Term Investment Trust, Tax-Free Cash Reserve Portfolio," "Moody's withdraws ratings of two BlackRock tax-exempt money market funds [BlackRock Liquidity Funds MuniFund and FFI Institutional Tax-Exempt Fund]," and "Moody's withdraws rating of COLOTRUST PLUS + Local Government Investment Pool," were sent out ahead of the ratings changes.
Most of these continue to have AAA ratings from S&P or Fitch, and Fitch just newly rated the Milestone fund AAA. One representative release explains, "Moody's Investors Service has withdrawn the Aaa rating assigned to the Williams Capital Government Money Market Fund. Moody's has withdrawn the rating for business reasons. For further information on Moody's ratings withdrawal policy, please refer to Moody's Withdrawal Policy on moodys.com."
