US-based risk rating agency Moody’s Investor Service has succeeded in vacating an emergency ex parte injunction granted in favour of Brazil’s Banco Prosper – enforcing the independence of rating agencies in Brazil.
 
A Rio de Janeiro court overturned a previous court’s ruling, which prevented Moody from disseminating its decision to downgrade its existing rating of Banco Prosper, on 18 May.
 
Robert Smit, a partner with Moody’s US counsel, Simpson Thacher & Bartlett LLP says, "This is an important decision for at least two reasons. First, it confirms that the opinions of rating agencies like Moody's are expressions of opinions entitled to constitutional free speech protections in Brazil, as they are in the United States.”
 
“Second, by rejecting an issuer's attempt to use the courts to influence Moody's ratings of the issuer, the decision protects the independence of rating agencies from the issuers they rate, which is critical to the integrity of the ratings process and the value of those ratings to the investing public," he adds.
 
As well as Simpson & Thatcher, Moody’s retained Machado, Meyer, Sendacz e Opice Advogados, who made the filing in Brazil. Prosper retained Brazilian firm Sergio Bermudes Advogados.
 
Prosper filed the claim in Rio’s civil courts on 7 May, arguing that Moody’s had taken a decision to downgrade the bank’s rating without having analysed its balance sheet for 2008.
 
Prosper hired Moody’s in 2007 to assess the risk associated with a prospective US$300 million bond issuance.
 
The offering never came to the market, but Prosper alleges that Moody’s downgrading was based on confidential information gleaned during the agency’s work inspecting the transaction.
 
According to the bank’s filing, “With no contractual relationship to justify the disclosure of the bank’s information to third parties, Moody’s should not act in the capacity of official authority and invest itself with the powers of inspection agency, which in Brazil, is incumbent on the Central Bank of Brazil.”
 
Prosper claimed, “The speculative report jeopardises not solely the bank […] but also affects the entire Brazilian bank system.”
 
In it’s counter-filing, Moody’s argued the injunction “must be revoked because it harms market investors,” by leading them to believe in a rating Moody no longer stands by.
 
In addition, Moody argued the ruling violated its contractual right to monitor and revise its ratings independent of the rated organisation. The agency also pointed out that its rating had been made in accordance with its standard procedure.
 
Machado, Meyer’s Walter Wigderowitz Neto says, “The main concern of the court was to verify if Moody’s had the right to freely express and publish its opinion. Based on the constitutional right of free speech, the court decided in favour of Moody´s allowing it to publish its opinion.”
 
 “It was also a very important decision because the court did not consider the merits of the rating, safeguarding its independence and trustfulness. In this sense, the decision may be seen as a good sign for the rating business in Brazil,” he adds.
 
Counsel to Moody’s Investor Service
 
Brazil
 
• Machado, Meyer, Sendacz e Opice Advogados
Partners Walter Wigderowitz Neto and Leonardo Corrêa
 
US
 
• Simpson Thacher & Bartlett LLP
Partners Robert Smit and Tyler Robinson, and associate Ana Carolina Viana
Counsel to Prosper
 
• Sergio Bermudes Advogados
Partners Sergio Bermudes, Marcio Viera Souto Costa Ferreira, Federico Ferreira, André Chateaubriand Martins, and Phillip Fletcher Chagas
 
DT
 
(Latin Lawyer 02.06.2009)
 
(Notícia na Íntegra)