Standard & Poor’s is facing scrutiny from the U.S. Securities and Exchange Commission for how it rated a commercial-mortgage bond in 2011, three people with knowledge of the matter said.
The inquiry extends beyond the securities and period that are the subject of a lawsuit brought in February by the U.S. Justice Department against New York-based McGraw Hill Financial Inc. and its S&P unit, according to two of the people, who asked not to be identified without authorization to speak publicly. Massachusetts has also looked into S&P’s post-crisis methods, Bloomberg News reported Feb. 21.
“We reviewed the application of our CMBS methodology and determined that the approach used for new transactions rated in 2011 produced results that were consistent with Standard & Poor’s rating definitions and resulted in no ratings changes," Ed Sweeney, an S&P spokesman, said in an e-mailed statement.
John Nester, an SEC spokesman in Washington, declined to comment on whether the agency was scrutinizing the deal, as reported earlier today by Dow Jones Newswires.
In July 2011, S&P pulled assigned grades on a $1.5 billion offering from Goldman Sachs Group Inc. and Citigroup Inc., prompting the banks to abandon the deal after it was placed with investors. S&P yanked the rankings after discovering potential discrepancies in how its methodology was being applied, the company said at the time.
The credit rater then halted rating any new commercial-mortgage bonds, saying it had to review a potential discrepancy in its model. That August, the company said the conflict had turned out not to be significant and it would resume grading deals.
The disruption kept S&P out of the commercial-mortgage backed securities market for more than a year. The company revised its criteria in September and reentered the market later that month, awarding investment-grade ratings on a $1.5 billion offering from JPMorgan Chase & Co. Moody’s Investors Service, the second-largest credit rater, criticized its competitor, saying the underlying loans in the securities did not “merit” the ranking.
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