Can Connecticut AG's probe affect Plainfield's bonds?

Plainfielders might want to watch this story if it veers into how municipal debt is rated.

Connecticut's AG is issuing subpoenas to credit-rating agencies S&P, Moody's and Fitch's in a probe into possible antitrust violations.

There are allegations that form three prongs to the investigation --

1. Issuers of debt are rated against their wishes and threatened with a downgrade if they don't pay for it;
2. Pressuring issuers of debt into exclusive contracts with a ratings agency or face a downgrade; and
3. Offering discounts to issuers of debt for exclusivity deals with the ratings agency.

Ratings agencies hold them selves forth as impartial and untainted in assessing the risk of bonds they are rating.

This investigation will throw a spotlight on their impartiality, just as they are coming under further scrutiny for their role in the subprime mortgage meltdown (including giving AAA ratings to some CDOs just days before lowering the ratings to junk bond status).

Moody's and Fitch's rate Plainfield's debt, in addition to that of the Union County Improvement Authority, through which Plainfield participates in bonds for certain items.

If these anticompetitive allegations bear up in Connecticut, we should ask if the same practices are used in New Jersey -- and whether taxpayers have been negatively impacted if local governments and authorities have been subject to such pressures.

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Newsday/AP: "Connecticut Subpoenas Rating Agencies"

-- Dan Damon

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