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CNN Live At Daybreak

Credit Rating Agencies Come Under Fire Because of Enron Collapse

Aired February 26, 2002 - 05:31   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: Now, in light of the Enron collapse, we are asking, "Who can you trust?" in a series of reports this week.

This morning, we look at some financial sleuths you rarely hear about.

Here is Peter Viles on the credit rating agencies.

(BEGIN VIDEOTAPE)

PETER VILES, CNN FINANCIAL NEWS (voice-over): You rarely hear about them, but they can drive a company into bankruptcy or bring an entire nation to its financial knees. Just ask the finance minister of Argentina.

Credit rating agencies, there are only three that matter, and all three face criticism they were late to warn that Enron was unraveling. Fitch, Standard & Poor's and Moody's, all three downgraded Enron debt to junk status on November 28; five days later, Enron filed for bankruptcy.

LAWRENCE WHITE, NEW YORK UNIVERSITY: Their job is to be out there looking real hard. Their job is to be a watchdog. And I don't think "We were fooled like everybody else" is a good enough excuse.

VILES: The agencies have said Enron failed to provide the information they would have needed to spot the trouble sooner. Agencies can ask for more information, but they cannot demand it.

STEPHEN JOYNT, PRES. & CEO, FITCH RATINGS: I would like to think that in the future, we can be more prescient by asking more detailed questions. But I have to tell you that without the proper information, we don't pretend that we are auditors or accountants. I am not sure even on re-reflection that we would have done much differently, unless we had a different set of information.

VILES: In fairness, there may have been no way for the agencies to signal Enron's troubles without forcing it into bankruptcy within days, because of ratings triggers that forced Enron to repay $3.9 billion in debt if its rating slipped below investment grade.

The agencies have responded by requesting more information from other companies about off-balance sheet entities and about ratings triggers. They have also moved to speed up credit reviews, but they are hampered. Bond investors have complained that they don't want changes that would make the bond markets more volatile.

In general, agencies have no qualms delivering bad news to large companies. Take Kmart. Standard & Poor's has rated its debt as junk for six years now, and Global Crossing never won an investment grade rating from any of the big three ratings agencies.

(on camera): To date, Congress has not expressed any particular displeasure in the ratings agencies, haven't asked any of the executives to testify, haven't even asked the agencies for any extra information on how they rated Enron debt.

Peter Viles, CNN Financial News, New York.

(END VIDEOTAPE)

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