This Bloomberg exclusive made lots of noise when it was published in March. One of the key points is that the rating agencies do not want to downgrade for fear of crushing banks:

"A bank would have to increase its capital against $100 million of bonds to $16 million from $1.6 million if a bond was downgraded to below investment grade from AAA, under global accounting rules"

There is some self-interest at play: banks are clients. And there is the pressure of politics too - regulators agree with banks (but probably not for all the same reasons) that market mechanisms have "overshot" (see the Bank of England's Financial Stability Report for example) and needlessly threaten the financial system.

Co-ordinated truce or otherwise it signals the banks to bail hard before the raters are forced to act/let off the leash (which seems to be happening in dribs and drabs).

Two contrasting articles from the FT and the Independent. The latter (not mortgage backed securities debt) obliquely touches a point previously raised in this space - that banks would end up ceding function to parallel lenders. But that's an aside. The main question these deals raise is what is the benefit to the likes of Blackstone and assorted private equity of a stay from the ratings agencies?

There isn't an obvious one. Simple economics says creating a false market (by not downgrading) merely defers discretionary buying activity. Blackstone pays attention to what ABX indexes read; they know rating agencies are looking to begin downgrades imminently; and yet they have settled on a 75 cents on the dollar deal.

Curious and perhaps the deal-by-deal detail provides the answers. But the temptation to open the floor to speculative inferences is great.

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