Source : The Straits Times, Mar 20, 2008
FRESH details have emerged over why a Singapore-listed property trust took unprecedented legal action to try to avoid a credit downgrade by global ratings agency Moody's.
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.'
Last week, Allco obtained a High Court order to stop Moody's Singapore from announcing its decision to downgrade Allco Reit's rating.
The injunction even prevented Moody's from holding any meeting or discussion to review Allco's credit rating.
The injunction was lifted on Tuesday after Moody's lawyers presented arguments to Justice Choo Han Teck.
Hours later, Moody's informed subscribers that it was reducing the rating of Allco Reit by one notch, from Ba1 to Ba2, with more downgrades possible.
These ratings gauge a company's credit standing. A Ba-rated company is judged to have speculative elements and be subject to substantial credit risk, according to Moody's definitions.
Allco's moves come against the backdrop of a global credit crunch that has made it harder for organisations to get funding.
A check of court papers disclosed that as early as Tuesday last week, Moody's ratings panel had decided to drop Allco's credit rating by two notches, from Ba1 to Ba3. This followed a previous downgrade on Jan 31.
Even as Allco appealed to Moody's against the downgrade, it went to court to stop the agency from reviewing its ratings before today. On Wednesday last week, Allco, represented by Senior Counsel Alvin Yeo, obtained the injunction.
Moody's, represented by Senior Counsel K. Shanmugam, then applied to lift the injunction.
Mr Shanmugam described Allco's legal moves as an abuse of process. Allco, he argued, was simply seeking to buy more time to conclude its refinancing negotiations with the banks.
He said the injunction prevented Moody's from doing its job of keeping the market properly informed of its current views of the issuer's credit standing.
When contacted yesterday, Mr McGrath declined comment.
NO SUCH AGREEMENT
'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.'
MR CHOY of Moody's Investors Service, saying in an affidavit that the firm had not assured Allco Reit that it would not decide on its rating until today
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