Colo. District Claims Against Credit-Rater Dismissed

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Administrators in the Jefferson County, Colo., schools thought they had been blindsided.

On the same morning in 1993 that the district's $110 million bond refinancing went to market, Moody's Investors Service issued an unsolicited, negative report on its credit.

District officials filed a lawsuit, claiming the report was a retaliation for the district's refusal to solicit a rating from the New York City-based company. As a result, the suit alleged, orders for the bonds dried up, and the district was forced to change the financial terms--a move that cost it at least $769,000.

The suit, filed in federal district court in Denver, accused Moody's of interference with contracts and potential contracts and "publication of injurious falsehood."

In a ruling this month, however, a judge dismissed the claims.

Moody's had a First Amendment free-press right to publish opinions about bond issues, U.S. District Judge William F. Downes of Casper, Wyo., said in his May 9 ruling. Judge Downes heard the case because of vacancies on the federal court in Denver.

Not an 'Ambush'

William O. Dwyer, the president of Moody's, praised the ruling in a written statement. "Our livelihood depends upon such [First Amendment] protection," he said.

After the ruling this month, Moody's issued a lengthy statement to clarify its role in the Jefferson County matter.

Even though it was not asked to rate the 1993 bond offering, the agency had ratings on older debt issued by the district, the company said. Also, the passage of an anti-tax amendment to the state constitution had created uncertainties for its customers who held the district's bonds.

"Our obligation to existing and future holders of the school district's general-obligation debt dictated that we analyze and comment on the credit quality" of the new offering, Moody's said.

The agency also said it did not intend to "ambush" the 1993 bond offering, but that it didn't learn about it until the morning the bonds went to market.

Officials in the 84,000-student district west of Denver said it would appeal the judge's ruling. Two federal antitrust claims are pending against Moody's, for which the district is seeking triple damages for its lost savings--at least $2.3 million.

The district claims Moody's uses unsolicited ratings to leverage "its market power to exclude competition in the credit-rating market." Moody's disputes the charges.

Vol. 15, Issue 36

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