Moody's mulls rating change for muni bonds

Moody's Investor Service plans to make changes to its rating practices for municipal bonds. Responding to criticism that ratings firms underrate municipal debt relative to corporate bonds, the New York-based ratings agency said it was considering changes to its ratings system. Under the proposal, cities and states can request a corporate-scale rating for their tax-exempt municipal bonds in addition to a standard municipal rating. Moody's is seeking comments on the change, which it said could go into effect in May. The move comes a several weeks after and 10 other states called on the country's three biggest ratings firms to use the same scale to evaluate municipal and corporate debt, ending a difference that has persisted for decades, according to The New York Times. Municipalities say the difference in ratings costs taxpayers because they have to buy insurance on bonds that are not rated triple-A, the highest grade assigned by the firms, according to the report. From 1970 to 2006, lower-rated, single-A municipal bonds defaulted 17 times less frequently than triple-A corporate debt, according to Moody's.