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Years After Tobacco Deals Sold, SEC Says Rating Agencies Still Conflicted

first_imgSign up for our COVID-19 newsletter to stay up-to-date on the latest coronavirus news throughout New York In our story last month about credit rating agencies and tobacco bonds, we detailed numerous instances in which bankers pressured Standard & Poor’s, Fitch and Moody’s to give favorable treatment to bond issues being put together on behalf of state and local governments.Documents showed that the bankers brazenly played one firm against another to relax rating criteria and grade risker, longer-term tobacco bonds. These actions mostly pre-dated the 2008 financial crisis, in which the raters earned widespread criticism for giving high marks to bum mortgage securities packaged by Wall Street.Now, a new report from the rating agencies’ regulator, the Securities and Exchange Commission, found similar conflicts of interest at the firms, which are supposed to evaluate the riskiness of various debts at arm’s length from the banks and issuers they serve.The SEC’s annual examination of the firms’ business practices, published on the same day as ProPublica’s ratings story, cited numerous examples of how the firms continued to compromise the objectivity of their rating process during the 2013 calendar year. For instance:One of the top three rating firms changed its rating criteria “in a manner that addressed” concerns from business managers and proved advantageous to a trade group that had lobbied for the changes, the SEC said, concluding that “business and market-share concerns influenced the substance of the criteria.”One of the top three rating firms took financial models that were developed by outside parties and used them for its credit rating process 2013 without independently verifying their validity. It turned out that “errors in these third-party models resulted in changes to a substantial number” of the firm’s outstanding ratings, the SEC said.The SEC also uncovered instances of analysts having access to business performance data, such as market share, which could influence their decision making when assigning ratings. The failure to separate analysts from business activity was particularly egregious at one smaller rating firm, which allowed an analytical supervisor to participate in sales and marketing activities for ratings while also participating in determining those ratings.The SEC’s report does not name specific credit rating firms, other than indicating whether they were the three largest firms, S&P, Moody’s and Fitch, or their smaller competitors. The SEC also made recommendations for improving their procedures to avoid the problems identified in the report. In statements reacting to the SEC’s report, S&P, Moody’s and Fitch each said they continue to enhance their policies and procedures.Rating criteria 2013 the standards that agencies use to evaluate repayment risk across various types of debts 2013 are not supposed to be negotiated for the sake of winning business. But ProPublica found evidence that criteria for tobacco bonds 2014 debts backed by payments from a massive 1998 settlement with cigarette manufacturers 2014 were heavily negotiated by bankers.In marketing documents collected by ProPublica across 22 tobacco bond offerings, bankers for UBS, Bear Stearns, Citigroup and others repeatedly took credit for getting the firms to bend their criteria. The raters earn hefty fees if they’re chosen to rate an issue.“Bear Stearns is the ONLY firm in two years to have negotiated new rating criteria pertaining to stress tests and tobacco sector fundamentals,” the now-defunct investment bank said in a 2005 marketing document typical of the firm’s claims of influence over the rating process.After our story published, Wisconsin responded to a ProPublica public records request with a disc containing dozens of tobacco bond records dating to 2001. They include more claims by bankers saying they had swayed the rating firms.In 2008, bankers from Lehman Brothers told Wisconsin that S&P had agreed to hear arguments for rating the state’s tobacco bonds “even if” the debt couldn’t satisfy the firm’s “newly-minted, more stringent” rating criteria, according to a proposal submitted by the bank three days after its historic Sept. 15, 2008, bankruptcy.2001 BearStearns2001 GoldmanSachs2001 JPMorgan2001 MerrillLynch2001 MorganStanley2001 SalomonSmithBarneydc.embed.load(‘http://www.documentcloud.org/search/embed/’, { q: “projectid: 17580-wisconsin “, container: “#DC-search-projectid-17580-wisconsin”, title: “Wisconsin Tobacco Bond Documents”, order: “title”, per_page: 6, search_bar: true, organization: 4 });In a 2007 document from Wisconsin, Bear Stearns said Fitch had published new rating criteria specifically in response to demands it made during a Puerto Rico tobacco deal. The criteria were “negotiated in their entirety during the rating process for our Puerto Rico tobacco transaction,” Bear Stearns said in a proposal to handle a potential deal by Wisconsin.Asked about the document, Fitch said no banker or outside party “unduly influenced” its ratings decisions for tobacco bonds. In statements and interviews, Moody’s and S&P also have denied changing their rating criteria for the debt in response to demands from investment bankers.In 2013, the Justice Department sued S&P for “falsely” representing that “its ratings were objective” when it rated subprime mortgage debts, seeking $5 billion in damages. S&P has said in defense that its ratings simply reflected its “current best judgments” about the debts. The firm may be nearing a $1 billion settlement of the mortgage ratings lawsuit, The New York Times reported on Monday.Like many of the mortgage securities at the heart of that lawsuit, the riskiest tobacco bonds are now headed for eventual default.Though the bonds are backed by money states and other governments get under the 1998 tobacco settlement, the amount of the annual payments is linked to cigarette sales, which have fallen faster than expected. That’s forced some states and counties to engineer bailouts.Last August, the SEC adopted rating agency reforms aimed at strengthening the separation between staff who perform the analytical work and business managers.The reforms hadn’t taken effect when the SEC conducted examinations summarized in its report. The new rules will be fully phased-in by June.Bill Harrington, a former Moody’s analyst who looked at ProPublica’s collection of tobacco bond documents and the SEC’s new report, said he doesn’t think the rating agencies have changed.Until 2010, Harrington worked in the Moody’s division that rated complex securities at the heart of the financial crisis. He said he frequently saw managers, analysts and their teams make changes to rating criteria on the fly to satisfy business concerns, such as winning deals and market share.In comments submitted to the SEC, Harrington has issued similar critiques, helping expose some of the rating-agency conflicts that contributed to the financial crisis. A Moody’s spokesman had no immediate comment on Harrington’s remarks.The SEC’s latest examination report, Harrington said, shows evidence of more of the same.“The ugly picture that you saw in 2008 can just repeat itself,” Harrington said.Related coverage: Read more of Cezary Podkul’s coverage of tobacco debt.ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.last_img read more

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BHS scheme could be first to pay new lifeboat fund levy

first_imgAccording to the PPF, schemes without sponsors “will always pose a higher risk than an otherwise identical scheme with a continuing sponsor, however weak”.The new levy – which is linked to equity market put option pricing – will cover any scheme set up between 1 January 2017 and 31 March 2018.The UK government last week published a wide-ranging discussion paper covering the defined benefit sector, prompted in part by the high-profile BHS case.One element of the paper focused on how to improve the handling of pension schemes with distressed sponsors before bankruptcy becomes imminent. The government wants to explore ways of allowing more schemes to operate independently of their sponsors to avoid pension deficits pulling companies into bankruptcy.Despite the temporary nature of the proposed levy, David Taylor, the PPF’s general counsel said in the consultation that “we do not rule out developing our approach to apply to a wider range of schemes in the future”.A small number of pension funds have successfully separated from their sponsoring employer in the past: Trafalgar House now provides third party administration services for other funds after spinning off from its engineering parent company in 2006. Photography company Kodak’s pension scheme put in place a similar arrangement, known as a “regulated apportionment agreement”, in 2012 when its parent company filed for bankruptcy in the US.BHS settlement reactionWhile TPR chief executive Lesley Titcomb called the settlement with Sir Philip Green “a strong outcome”, other industry commentators have been less positive. The regulator is seen as having settled for a lesser amount in order to avoid a court battle, according to several people.David Everett, partner at consultant LCP, pointed out that a de-risking plan had been discussed before BHS’ sale in 2015 which would have been similar to the arrangement finalised this week – and it would have cost Sir Philip much less.“The winners in all this are the PPF, which is not having to take on two underfunded schemes, and a handful of former BHS employees for whom the PPF’s compensation cap would have bitten very harshly,” Everett added.Darren Redmayne, CEO of Lincoln Pensions, a specialist in covenant advice, said: “While [the BHS settlement] may suggest a ‘third way’, whereby employers can shed their schemes without paying the full buyout liability, in practice the barriers remain high – you only have to look at the select committee investigation, regulatory process and reputational damage Philip Green has suffered, to see this isn’t a path that companies will readily choose unless they absolutely have no other option.”In future, Redmayne added, there were likely to be more sponsorless or “zombie” schemes due to more employers struggling to fund deficits.“As such, it will be for the ‘greater good’ that compromises will be struck,” he said. “These situations remain relatively rare but as the full scale of the defined-benefit deficits issue works through the system in the coming years we will likely see such settlements on a more regular basis.”Rory Murphy, chairman of the Merchant Navy Officers’ Pension Fund, said: “Everyone appears to have won to some degree in this game of high-stakes poker. Each player could have played their hand for more in this negotiation but would have risked losing more – as such, this looks like a decent result for all concerned.”Murphy also questioned the need for greater powers for TPR, which was being discussed in the government’s green paper. He said: “Given TPR with its existing powers can achieve this result, why is there a need to increase them?” The pension scheme for employees of collapsed UK high street chain BHS could be the first to pay a new levy to the Pension Protection Fund (PPF).The Pensions Regulator (TPR) this week confirmed a £363m settlement with Sir Philip Green, whose Arcadia conglomerate sold BHS in 2015, a year before it filed for bankruptcy. The money will pay for a new scheme to be set up, paying better benefits than are available from the PPF.The new scheme will be established in the next few months, according to TPR. This means it will likely become the first – and potentially only – pension fund to pay a new form of levy being introduced by the PPF this year.The lifeboat fund is currently consulting on a new form of levy for funds without a “substantive” sponsoring employer – such as the new BHS scheme. The consultation closes on Monday 6 March.last_img read more

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Summit returns to national decal program for IMCA Modifieds, gives awards in eight divisions

first_imgTALLMADGE, Ohio (March 22) – Summit Racing Equipment returns to the national decal program for IMCA Xtreme Motor Sports Modifieds this season, its fifth as a marketing partner with the sanctioning body.Drivers in the division are required to display two Summit decals on their race car and send a picture of their car proving decal placement to the IMCA home office by Aug. 1 to be eligible for regional point fund shares.The Tallmadge, Ohio, high performance parts retailer gives $100 gift cards to drivers in eight sanctioned divisions. Those recipients include finishers in top 10 standings for each of the five Modified regions, both IMCA Sunoco Stock Car regions and the two IMCA Sunoco Hobby Stock regions.Gift cards of the same value go to top 10 drivers in national standings for IMCA Late Models, IMCA Eagle Motorsports RaceSaver Sprint Cars, Karl Chevrolet Northern SportMods, Scoggin-Dickey Parts Center Southern SportMods and Mach-1 Sport Compacts. Gift cards will be presented during the national awards banquet in November or mailed from the IMCA home office beginning the following week. “This program is as comprehensive as it comes from IMCA marketing partners, with thousands of dollars in gift cards scattered all across the country,” IMCA Marketing Director Kevin Yoder said. “If your pre-season goal is to make a run at the top ten nationally, no matter what division you race Summit will recognize that accomplishment with a $100 congratulations.” The 2014 season is Summit’s fourth as part of the IMCA Modified national decal program.Information about Summit products is available at the www.summitracing.com website or by calling 800 230-3030.last_img read more

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CJIA expansion to be completed in 2017

first_imgFollowing several delays, the contractors steering major expansion works at the Cheddi Jagan International Airport (CJIA) are confident that they will be able to complete the project by the end of next year.This was disclosed on Friday by Project Manager of the Public Infrastructure Ministry, Carmichael Thorne, who updated the media on theA design preview of the CJIA upon the completion of the worksCJIA Expansion Project during a visit to the construction site.Public Infrastructure Minister David Patterson and Junior Infrastructure Minister Annette Ferguson were part of the delegation during the site visit along with representatives from the Ministry, the CJIA, China Harbour and the consultancy company. Shadow Infrastructure Minister and Opposition Member Juan Edghill, was also present.The US$150 million project was scheduled to be completed within 32 months of its commencement in 2013; however, Thorne noted that the deadline was extended to December 1, 2017 since the project would have experienced several delays.In 2012, Guyana, under the leadership of former President Donald Ramotar, had secured a US$138 million loan from the China Exim (Export-Import) Bank to fund the expansion and modernisation project, for which the Guyanese Government has injected some US$12This photo shows the point (green hill) up to which the sand filling has to be donemillion.However, when the coalition Government came into power last year, the project was put on hold but following discussions between Public Infrastructure Minister David Patterson, and the contracting company, China Harbour Engineering Corporation (CHEC), it was announced that the project will be continued.At the project update briefing, Thorne noted that of the US$150 million, only some US$37.3 million has been expended to date. In this amount, some US$33 million was spent by CHEC which includes US$1.9 million of local funds put up by the Government of Guyana.As it relates to the works being done, the Infrastructure Ministry’s Project Manager told media operatives that while the initial plan was for the northern end of the runway to be extended, because of difficulties with the terrain a decision was taken to extend the runway from both the northern and southern ends in order to minimise the cost.During the visit to the site, it was pointed out that the contractors are using a technique called ‘vibroflotation’. This is a method of improvement of non-cohesive soils by re-arranging the grain distribution pattern while applying cyclic vibrations which cause the outflow of granular soil. As a result, the compaction of soil and the pore volume reduction are obtained.According to Patterson, this technology is new to Guyana and is being used as it has proven to be less time consuming than the sand filling process. “It’s a common technique outside of Guyana. In Guyana we would pack and pack and then compact but because of the depth and time, we decided to employ this new technique… This magnitude and height (of sand filling) was never done before in Guyana,” he emphasised.At the southern end, Minister Patterson explained that the land needs to be build up to ‘Elevation 29’. A portion is currently built up to ‘Elevation 21’ but by next week, work will commence to take this portion up to the require amount.However, he pointed to a massive area were works are being done at ‘Elevation 17’ level. According to the Minister, these lands will have to be built up to provide the runway end safety area, which will prevent accidents such as the Caribbean Airlines incident a few years ago.Meanwhile, the CHEC Project Manager, Keliang Liu, outlined that they are hoping to have the lands completely sand filled by the end of year to commence actual works on the runway.In relation to the other works to be completed as part of the CJIA Expansion project, Thorne noted that because the objective of the project is to cater for bigger aircrafts landing at the CJIA, the apron needs to be expanded as well to provide parking for the larger aircrafts.With regards to the Terminal Building, he disclosed that they will be constructing a new arrival building while the existing terminal building will be rehabilitated and used for departure only. “So you will have all that space to use for departing passengers,” he remarked.In addition, the Project Manager noted that an important new feature of the project is the boarding corridor and bridges which will be attached to the new arrival building and will lead passengers off of the plane into the terminal building.Moreover, the media was taken around the facility and shown the new Guyana Defence Force Engineering Corps, the Police Outpost and Constabulary, and the K-9 accommodation and Kennel buildings which are mostly completed. As it relates to the other facilities such as utilities relocation and road diversions in the area, works are ongoing.last_img read more

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