Moody's Investors Service plans to speed up its rollout of a new method for rating high-yield loans and bonds, releasing all of its new ratings for North America in late September, the agency said on August 18.
The changes, originally planned to be rolled out over a period of six to 18 months, will be compressed into a few weeks, Moody's managing director Mike Rowan said in an interview.
Moody's is reviewing its ratings for about 1400 speculative-rated companies in the United States and Canada in a move to better reflect the extent of losses if an issuer defaults.
Ratings on most first-lien loans will likely be raised in the process, some by multiple notches, said Moody's senior vice president Russ Solomon.
The changes stem from research showing that credit losses on loans are lower than those on bonds with the same rating. Loans rank higher than bonds in claims on a company's assets, boosting recoveries in a bankruptcy.
The agency's preliminary work also suggests that about half of bond ratings will remain unchanged, about one third will be upgraded and about 17 percent downgraded, Solomon said. The changes will affect specific issues, not the basic company, or corporate family, ratings, he said.
The time period for the roll-out was accelerated to make ratings comparable as quickly possible and minimise market disruption, Solomon said.
As part of the new method, Moody's will be splitting out the two components of its current ratings - the probability of default and loss in a default.
In similar moves, Standard & Poor's and Fitch Ratings have also detailed recovery prospects in their ratings of high-yield bonds and loans.
Moody's plans to publish its rating methodology in a week or two and then release new ratings industry by industry. It will also release the model analysts are using so that investors can replicate the method and anticipate changes, Rowan said.
Announced in January, the changes initially sparked controversy in the leveraged loan market, where investors feared that higher ratings would lead to tighter loan spreads, crimping investment returns.
Moody's has said that spread tightening will probably be less than feared because the better recoveries in the loan market are likely already factored into spreads.
The leveraged loan market has become a major source of funding for junk-rated companies, with volumes topping $500 billion for the first time last year.