Injunction against Moody’s

Interesting bit of news I came across on Allco Commercial Real Estate Investment Trust’s failed attempt to obtain an injunction against Moody’s Investors Service.Moody’s is a credit rating agency that assigns credit ratings and ranks the credit-worthiness of borrowers using a standardised ratings scale. More on the history of Moody’s is set out in the Washington Post.

Allco Commercial REIT is listed on the Singapore Stock Exchange, with assets in Singapore and Australia.

On 12 March 2008, Allco managed to obtain an injunction to restrain Moody’s from issuing a downgrade on the trust. The injunction also prevented Moody’s from holding any meeting or discussion to review Allco’s credit rating.

Presumably this injunction was applied and granted ex parte, which resulted in Moody’s applying to set aside the injunction.

Quoting from the Straits Times today:

Allco Commercial Real Estate Investment Trust (Reit) felt a $620 million bank refinancing deal could be jeopardised by a downgrade, according to court documents obtained by The Straits Times.

In an affidavit, Allco Singapore chief executive Nicholas McGrath said he was shocked to hear of the planned downgrade as he had been assured by Moody’s that its panel would not decide on Allco’s rating until today.

‘I also informed Moody’s that it was crucial that there was no revision of Allco Reit’s rating before the requisite credit approvals from its bankers were obtained for the refinancing of its debts worth $620 million.’

But Mr Peter Choy, a vice-president and senior credit officer at Moody’s Investors Service, said in an affidavit that the agency had made no such assurances.

He said: ‘If there was ever any suggestion that Moody’s customers could control or influence its ratings, the market would no longer trust the ratings that it gives.’

It will be interesting reading the legal arguments both for and against such an injunction, and the written grounds of judgment are not out yet. From a cursory examination, it seems difficult for Allco to establish any right for such an injunction, in that there is no serious issue to be tried. But the injunction did get past the ex parte stage, and Allco’s Counsel must have convinced the Judge that there were some merits.

This hasn’t been the first time that such an injunction has been sought against a credit rating agency. In 2003, Tranz Rail Holdings Ltd had tried to obtain an injunction from the High Court of New Zealand against Standard & Poor to restrain it from issuing a press release confirming a downgrade in rating. This application was subsequently withdrawn.


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