Oct. 31 (Bloomberg) -- Moody's Corp., the second-largest credit-rating company, will begin cutting jobs as soon as next month as the credit-market slump saps demand for its bond-rating services.

Positions will be eliminated and some vacancies won't be filled, Fran Laserson, a spokeswoman for New York-based Moody's, said in an interview. She said the job reductions will be less than the 10 percent reported yesterday by financial news Web site Creditflux.

Moody's, which gets more than 90 percent of revenue from its ratings and research business, doubled its headcount between 2003 and the end of 2006 to about 3,400 employees amid soaring sales of corporate bonds and debt linked to subprime mortgages. The company last week reported its first drop in net income in seven years as revenue from rating residential mortgage securities tumbled 52 percent.

``We're looking for ways to eliminate redundancies and reduce our costs in this difficult environment,'' Laserson said. About 70 percent of Moody's costs are employee-related, she said.

The stock has fallen 37 percent this year, declining to a two-year low in September of $42.87. The stock fell 7 cents to $43.18 as of 10:48 a.m. today in New York Stock Exchange composite trading. McGraw-Hill Co.'s Standard & Poor's is the largest ratings company.

Laserson said the reductions were discussed with staff during a meeting yesterday. Affected employees haven't yet been notified, she said. On an Oct. 24 conference call with investors, Chief Financial Officer Linda Huber said there would be ``some selective staff reductions.''

CDO Sales Fall

Global sales of new collateralized debt obligations in August declined 54 percent from July to $17 billion, the lowest in more than year, Morgan Stanley said in a Sept. 5 report.

The sale of structured finance products including CDOs may fall as much as 50 percent in the fourth quarter, Moody's executives told investors on an Oct. 24 conference call. CDOs package bonds, mortgages and other assets, using the income to pay investors.

Average staffing levels grew about 16 percent in the second quarter from a year earlier, mainly to support business growth in the U.S. and Europe, the company said in its second-quarter regulatory filing in August.

Operating expenses rose about 21 percent in the third quarter and 28 percent in the second quarter from the year-ago periods partly because of hiring made in late 2006 and the first half of 2007 when ratings revenue was surging, according to earnings statements.

The job cuts follow a move by Moody's in August to separate the credit ratings operations from the marketing and analytics businesses to underscore the independence of its opinions.

The company has been criticized by investors and lawmakers for grading subprime-mortgage securities too highly and failing to act when homeowners began defaulting on loans backing the bonds. The U.S. Securities and Exchange Commission is probing whether Moody's and other credit rating companies were ``unduly'' pressured by Wall Street to give inflated ratings.

To contact the reporters on this story: Christine Richard at crichard5@bloomberg.net; Mark Pittman at mpittman@bloomberg.net

Last Updated: October 31, 2007 11:33 EDT