Noting the “growing relevance and importance to investors and lenders,” Moody’s Investors Service announced Thursday it will expand its research and analysis in several areas of corporate credit analysis. The credit ratings service said it would apply “greater analytical focus and commit additional resources to its analysis and published research on the quality of financial accounting and the transparency of corporate disclosure, corporate governance issues, and risk management and derivatives issues related to credit.”

The dedicated specialists will augment Moody’s existing credit analyst staff, comprised of experts with backgrounds in accounting, corporate governance and derivatives analysis — including trading exposures and off-balance sheet risk transfer structures.

“There is a growing expectation that rating agencies should have the ability and responsibility to look more comprehensively behind the numbers,” said Raymond McDaniel, Moody’s president. “Recent disclosures of questionable accounting practices and the increasing number of accounting restatements have undermined investor confidence, even in companies with solid practices.”

Corporate credit analysis has become more challenging over the past decade as the use of derivatives, hybrid securities and off-balance sheet structures introduce greater complexity into the financial analysis of many companies, he added. “This evolution in financial technology and the need to more fully explore issuers’ accounting practices requires greater specialized expertise to supplement the work of credit generalists.”

Investors, he said, are increasingly looking to rating agencies regarding the quality of public disclosure and corporate governance. “Strong practices in these areas may enhance creditor interests.”

The specialists will participate in rating review meetings with borrowers and will publish topical research in their areas of expertise. In addition, the specialist staff also will provide technical training to the rating agency’s credit analysts, further bolstering the agency’s capabilities, said Moody’s.

In time, “issuers can expect more interaction with Moody’s analytical teams. That interaction will include a deeper dialogue around accounting practices, financial disclosure, and risk management techniques influencing creditworthiness, often with the participation of Moody’s specialists.” The ratings agency also plans to broaden the scope of its written research to include credit-related commentary regarding accounting practices, risk management and corporate governance.

“We hope that this new initiative will contribute to the restoration of investor confidence and to improved access to the debt capital markets for many rated issuers,” said McDaniel.

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