Standard & Poor's Says Civil Lawsuit Threatened By DOJ Is Without Legal Merit And Unjustified

Standard & Poor's Says Civil Lawsuit Threatened By DOJ Is Without Legal Merit
                               And Unjustified

FROM 2007

- S&P Analysts Provided Good-Faith Ratings In Unprecedented U.S. Housing
Market In 2007

- CDOs Whose S&P Ratings Are Challenged By DOJ Also Independently Received
Same Ratings From Other Rating Agencies

- DOJ Is Threatening to Sue S&P For Not Predicting Full Magnitude Of Housing
Downturn Despite Failure Of Virtually Everyone To Do So

- DOJ Lawsuit Would Disregard Key Facts Including S&P's Downgrades of RMBS,
Increased Collateral Required To Support AAA CDO Ratings, And Public Warnings
Prior To Crisis

- Threatened Use Of 1989 FIRREA Statute Against A Rating Agency Would Be
Unprecedented And Has No Legal Merit

- S&P Has Learned Lessons From Financial Crisis And Has Invested $400 Million
Since 2007 To Strengthen Its Ratings

PR Newswire

NEW YORK, Feb. 4, 2013

NEW YORK, Feb. 4, 2013 /PRNewswire/ --Standard & Poor's Rating Services
("S&P"), a subsidiary of The McGraw-Hill Companies, Inc. (NYSE: MHP) today
disclosed that the Civil Division of the United States Department of Justice
("DOJ") has informed the Company that it intends to file a civil lawsuit
against S&P focusing on its ratings in 2007 of certain U.S. collateralized
debt obligations ("CDOs"):

"A DOJ lawsuit would be entirely without factual or legal merit. It would
disregard the central facts that S&P reviewed the same subprime mortgage data
as the rest of the market – including U.S. Government officials who in 2007
publicly stated that problems in the subprime market appeared to be contained
– and that every CDO that DOJ has cited to us also independently received the
same rating from another rating agency. S&P deeply regrets that our CDO
ratings failed to fully anticipate the rapidly deteriorating conditions in the
U.S. mortgage market during that tumultuous time. However, we did take
extensive rating actions in 2007 – ahead of other ratings agencies – on the
residential mortgage-backed securities ("RMBS") which were included in these
CDOs. As a result of these actions, more collateral or other protection was
required to support AAA ratings on CDOs. With 20/20 hindsight, these strong
actions proved insufficient – but they demonstrate that the DOJ would be wrong
in contending that S&P ratings were motivated by commercial considerations and
not issued in good faith.

"Before 2007, and increasingly during 2007, S&P downgraded a record number of
RMBS and repeatedly warned of deteriorating conditions in the housing market
and potential additional downgrades to come, in many cases before our peers.
For example:

  oIn 2006, S&P downgraded 400 RMBS ratings – more than in any prior year in
    history – mostly in the subprime sector.
  oIn February 2007, S&P was the first rating agency to take negative ratings
    actions against new transactions even though the pools underlying those
    transactions had at that time experienced no actual losses.
  oBetween February and July of 2007 alone, S&P took 637 negative actions on
    ratings (250 downgrades and 387 CreditWatch negative actions) on 2006
    vintage subprime RMBS.

"S&P analysts worked diligently to keep up with an unprecedented, rapidly
changing and increasingly volatile environment, while acting to ensure changes
to their ratings reflected robust analysis and deliberation. In fact,
throughout this time, S&P included in its analysis the possibility that a rise
in mortgage delinquencies would result in bondholder losses and, as a result,
required substantially more RMBS collateral as protection against such
potential losses to support AAA CDO ratings. Regrettably, the breadth, depth,
and effect of what ultimately occurred were greater than we – and virtually
everyone else – predicted. As former SEC Chairman David S. Ruder testified
before the U.S. House of Representatives:

  'None of the primary market participants predicted the collapse. The risk
  management systems of most banks, investment banks, rating agencies, and
  credit default swap insurers did not predict the collapse. Regulators,
  including the Federal Reserve Board, the Federal Deposit Insurance
  Corporation, the Department of the Treasury, the SEC, and the Commodities
  Futures Trading Commission did not predict the collapse.'

"A number of court rulings have dismissed challenges made with 20/20 hindsight
to a credit rating agency's opinions of creditworthiness. In an attempt to
end run well-established legal precedent, the DOJ plans to use a questionable
legal strategy by suing S&P under the Financial Institutions Reform, Recovery
and Enforcement Act (FIRREA) – a statute enacted in 1989 to stabilize and
reform the savings and loan industry. If DOJ does bring suit, we will
vigorously defend our Company against such meritless litigation.

"Clearly, we must all do a better job identifying economic trends that could
lead to future crises. For their part, governments have established new
institutions to identify risks to financial stability, such as the Financial
Stability Oversight Council in the U.S. At S&P we have taken to heart lessons
learned from the financial crisis and made extensive changes that reinforce
the integrity, independence and performance of our ratings, including
compliance with today's enhanced regulatory oversight.

"Since 2007, we have invested approximately $400 million in our systems,
governance, analytics and the methodologies that we use to rate securities.
We brought in new leadership, instituted new governance and enhanced risk
management. We have taken substantive actions to:

  oStrengthen independence from issuer influence: We have long had policies
    in place to manage potential conflicts of interest, including a separation
    of analytic and commercial activities, a ban on analysts from
    participating in fee negotiations, and de-linking analyst compensation
    from the volume of securities they rate or the type of ratings they give
    out. Post-crisis, we further strengthened analytical independence by
    rotating the analysts assigned to a particular issuer and enhancing
    analyst training on issuer interactions.
  oImprove the integrity and validity of our methodologies and models: We
    reassessed the principles underlying the way we rate all debt. Based on
    what we learned, we changed the way we rate almost every type of security
    that was affected by the financial crisis including U.S. RMBS, CMBS, CDOs,
    banks and insurers. For all mortgage-related securities we have
    significantly increased the credit enhancement required to achieve a AAA
    rating and have made it more difficult in general for securities to
    achieve high ratings. We also strengthened our risk management including
    instituting a Model Validation Process independent of any commercial
  oIncrease analytical focus on interpreting and responding to global credit
    changes: We established Credit Conditions Committees around the world to
    identify and monitor risks to the interconnected global credit systems
    across all asset classes and create a coordinated credit risk perspective
    across the company.
  oEnhance regulatory compliance and quality: We significantly increased
    staffing in order to strengthen compliance and analytical quality,
    including documentation of procedures and ratings actions, and quality
    reviews of ratings.

"We will continue to enhance our governance, training, quality control,
analytic models and investor education. For more information about the
extensive enhancements to our business – both completed and ongoing – please
go to

"It is also important to note that credit rating agencies became regulated in
the United States in the fall of 2007 with the enactment of the Credit Rating
Agency Reform Act, and the Dodd-Frank Act of 2010 which further strengthened
accountability, transparency and oversight for credit rating agencies. We are
now also regulated in Europe, Japan, Australia and other countries.

"S&P currently issues ratings on more than $45 trillion in debt globally
across all asset classes issued by companies, financial institutions,
countries, state and local governments and others. We will not be distracted
from our core mission. As always, we are committed to providing investors and
the markets with the highest-quality ratings available and the tools to
navigate an increasingly complex global financial marketplace."

About Standard & Poor's Ratings Services: Standard & Poor's Ratings Services,
part of The McGraw-Hill Companies (NYSE: MHP), is the world's leading provider
of independent credit risk research and benchmarks. We publish credit ratings
on debt issued by sovereign, municipal, corporate and financial sector
entities. With over 1,400 credit analysts in 23 countries, and more than 150
years' experience of assessing credit risk, we offer a unique combination of
global coverage and local insight. Our research and opinions about relative
credit risk provide market participants with information and independent
benchmarks that help to support the growth of transparent, liquid debt markets

Additional information is available at

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Release issued: February 4, 2013

Catherine Mathis
Senior Vice President, Marketing & Communications
(212) 512-2578

Chip Merritt
Vice President, Investor Relations
(212) 512-4321

SOURCE Standard & Poor's Ratings Services

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