Late Wednesday, Blockbuster Inc. (NYSE: BBI) scored a ratings upgrade from Standard & Poor's. The ratings agency raised Blockbuster's corporate credit rating from "CCC" to "B-" with a stable outlook. S&P commented, "The stable outlook reflects our belief that liquidity will remain adequate over the near term despite continued operational weakness and moderate deterioration of the company's credit protection metrics."

S&P's new rating is still six notches into junk territory, but the upgrade is nevertheless a vote of confidence in Blockbuster's refinancing efforts. On Monday, the video rental firm announced plans to offer up to $340 million in senior secured notes due 2014, and yesterday, Blockbuster said it would close up to 40% of its brick-and-mortar stores during the next two years.

Continue reading S&P, Moody's grow more upbeat on Blockbuster

S&P, Moody's grow more upbeat on Blockbuster originally appeared on BloggingStocks on Thu, 17 Sep 2009 12:20:00 EST. Please see our terms for use of feeds.

What are the new changes in financial regulation? First and foremost, President Obama wants to expand the powers of the Federal Reserve to assume primary responsibility for averting an new financial crisis.

Secondly, he wants to create a "council of financial regulators" who would improve coordination among agencies. The council would discuss systemic risks, but the Fed could at alone without its approval.

The administration has decided not to consolidate regulatory agencies due to the political fallout involved.

Continue reading New financial regulation empowers the Fed

New financial regulation empowers the Fed originally appeared on BloggingStocks on Wed, 17 Jun 2009 12:30:00 EST. Please see our terms for use of feeds.

Now that the SEC has had some time to sift though all the evidence of why credit rating agencies were so wrong in their view of mortgage-backed securities, the most disturbing finding is that S&P analysts thought their own conclusions about risk were often wrong.

According to The Wall Street Journal (subscription required), an S&P analytical staffer emailed another that a mortgage or structured-finance deal was "ridiculous" and that "we should not be rating it."

What should the government do now that it has the goods? It could fine S&P, and probably will. The fine could never be large enough to match the hundreds of billions of dollars lost by financial firms that put money into the securities. The SEC could bring charges against some of the analysts. As it is, some of them will probably lose their jobs.

The most sensible solution would be to bar S&P from rating derivatives at all. Would that leave a hole in the market? Probably. Other credit agencies might have been involved in similar misdeeds. That would mean they would have to exit the business as well.

The net effect of moving credit ratings out of the business of covering derivatives would almost certainly mean a huge drop-off in the market for the instruments. That might not be such a bad thing.

Douglas A. McIntyre is an editor at 247wallst.com.

A solution to the credit rating mortgage securities scandal originally appeared on BloggingStocks on Sat, 02 Aug 2008 08:40:00 EST. Please see our terms for use of feeds.

When things are going well, the government seems to leave well enough alone. But, after credit ratings operations like S&P and Fitch missed the mark badly on their analysis of subprime financial instruments, the SEC may want a hand in how the firms function.

As the heart program being reviewed by the SEC is a plan to grade past ratings from the credit agencies to see whether they were accurate. Call it a report card. According to The Wall Street Journal (subscription required), SEC Chairman Christopher Cox said the potential rules "would require credit-rating agencies to make disclosures surrounding past ratings in a format that would improve the comparability of track records and promote competitive assessments of the accuracy of past ratings."

Getting all of the data about how the companies grade securities and comparing past ratings to how securities actually performed is an excellent idea. It is not unlike looking at how a securities analyst has done with his or her ratings of stocks.

The problem with the credit ratings agency program now is that it has no basis in accountability. Changing that is the key to improvement.

Douglas A. McIntyre is an editor at 247wallst.com.

SEC moves to regulate bond rating firms originally appeared on BloggingStocks on Sat, 09 Feb 2008 11:10:00 EST. Please see our terms for use of feeds.

Rather than stick your money under the mattress, invest in mattress companies. This seems to be the conclusion from Moody's credit rating agency, which rated mattress companies as the consumer-durables sector least vulnerable to a reduction in consumer spending due to a recession. Not surprisingly, recreational vehicle and products companies are the most vulnerable to a sustained slowdown in consumer spending.

How much will consumer spending decline over the next few months? That is the trillion-dollar question. Moody's recently downgraded several large home builder companies. Given the slowdown in the housing construction sector and the tightening of credit for home mortgages, such a downgrade was hardly surprising. Now Moody's is examining the debt maturies of consumer-durables companies in comparison to their revolving credit facilities for 2008-2009. Whirlpool Corporation (NYSE: WHR), Brunswick Corporation (NYSE: BC) and Dixie Group (NASDAQ: DXYN) all have substantial debt maturities in the near future, but Moody's did not downgrade those companies, as they have enough in their credit facilities to weather a slowdown. Other consumer-durables companies will not be so fortunate.

Recession-proof investment? Put your money in mattresses originally appeared on BloggingStocks on Thu, 24 Jan 2008 11:01:00 EST. Please see our terms for use of feeds.

Subprime bailout could lead homeowners to tank their credit scores originally appeared on BloggingStocks on Mon, 10 Dec 2007 09:23:00 EST. Please see our terms for use of feeds.

Shares of Moody's (NYSE: MCO) have plunged as the ratings agencies become Public Enemy No. 1 in the quest for a villain in the subprime fiasco.

Now Forbes is wondering (subscription required) about Fair Isaac (NYSE: FIC), a rating agency for individuals that uses a complex algorithm to calculate a FICO score. As evidenced by the rising foreclosure rates on loans that were given based on people's FICO scores, it seems that the algorithm may not have had as much predictive power as they thought.

According to Forbes, "In January a contrite Fair Isaac, along with bond rating agency DBRS (formerly Dominion Bond Rating Service), produced a study that revealed some of FICO's limitations. It found, for instance, that a borrower with a high credit score is just as likely to default on a no-money-down mortgage as a lower-scoring borrower who puts down 40%. So two portfolios with identical average FICOs can behave very differently."

In other words, the average FICO score of a portfolio of loans is not an accurate predictor of risk -- a huge problem because that's exactly what many investors assumed it was.

Now Fair Isaac seems to be backing off the value of its ratings: According to a vice president at the company, "FICO scores an individual's risk over time. It's not an assessment of the riskiness of the loan made."

If a FICO score can't be used to asses the riskiness of a loan, what good is it in determining whether to lend to someone?

In the wake of the blow-ups of numerous quant funds and scandals involving rating agencies with complex algorithms, it looks like investors would do well to step away from the computer and do some old-fashioned hands-on due diligence.

FICO takes some heat for the subprime mess originally appeared on BloggingStocks on Mon, 03 Sep 2007 15:15:00 EST. Please see our terms for use of feeds.