Rating News: Moody's expands rating scale for health care, higher education, and not-for profit...

NEW YORK--(BUSINESS WIRE)--Oct. 2, 1996--Beginning today, Moody's will rate new public financings within the health care, higher education, and other not-for profit sectors using new bond rating symbols.

The new symbols are the numerical modifiers 2 and 3, which will be added to the

"In this changed environment, investors will be better served by a rating system that can provide a sharper perception of tax-exempt credit quality," said M. Douglas Watson, Jr., Managing Director, Moody's Public Finance Group.

The decision to implement the expanded rating scale is also attributed to requests by investors, the rise of mutual funds, and the deteriorating credit quality of public finance debt in the past several decades, as well as to the need to make finer risk distinctions between increasingly complex financial instruments.

Expanded Rating Scale Defined

Under the expanded rating scale, the meaning of the numerical modifier 1 remains the same. It indicates that the security meets all of Moody's criteria for a particular rating and ranks at the high end of that generic rating category. The numerical modifier 2 indicates that the security is in the mid-range of its category, and the modifier 3 indicates that the issue is in the low end of its generic category. A triple-A (Aaa)rating will have no numerical modifier; it remains Moody's highest bond rating. Also, generic ratings Caa, Ca, and C will not have numerical modifiers. Moody's ratings for short-term debt issues and commercial paper issuers have not changed.

By using the numerical modifiers 2 and 3 in addition to the numerical modifier 1, the number of possible bond credit ratings for these sectors increases to 19 from 14. Certain Health Care, Higher Education, and Other Not-for-Profit Ratings to Be Reviewed

"Moody's is reviewing previously assigned Aa, A, Baa, Ba, and B ratings relating to issues within the health care, higher education, and other not-for profit sectors," said Dennis Farrell, who heads the Health Care, Higher Education, and Other Not-for-Profit unit of Moody's Public Finance Group. "This review is expected to be complete in about four to six weeks, at which time we will assign the 2 and 3 numerical modifiers to these outstanding bond issues."

Outstanding bond issues that are rated Aaa, Aa1, A1, Baa1, Ba1, B1, Caa, Ca, and C are not affected by this review and amount to approximately $40 billion.

Sector Volatility and Sector Trends Call for Rating Refinement

According to Farrell, the health care and higher education sectors have been particularly volatile. Changes in health care delivery, insurance, and federal health programs have transformed that industry, demanding closer monitoring by investors and regulators as well as greater distinction in credit quality by rating agencies.

Higher education also faces greater market challenges that affect the credit quality of its debt. Certain higher education sectors are improving, while others face unprecedented challenges that emphasize the need for rating refinement.

Moody's May Extend Numerical Modifiers to Other Sectors

The decision to refine and expand the rating scale for these sectors is the result of two years of consideration and research and follows previous changes to Moody's bond rating scale. "We are considering extending the numerical modifiers 2 and 3 to other sectors of the public finance market," said Watson. "Our decision will be influenced by the needs of investors and how they can best be served." -0-

NOTE TO JOURNALISTS: For a copy Moody's Rating Policy Announcement, please contact James Jockle at 212/553-1925.

CONTACT: Public Finance Group

Dennis M. Farrell

Vice President/Assistant Director

212/553-7780

or

Public Finance Group

M. Douglas Watson, Jr.

Managing Director

212/553-0376