"They can pretty much charge the fees they want to," she said. "You have no choice but to pay it."
Moody's declined to comment on Compuware, but the firm said it now charges an annual flat fee of $20,000 for monitoring a corporate borrower to remove any confusion.
Dessa Bokides, a former Wall Street banker who founded a ratings advisory group at Deutsche Bank AG, said rating firms are continually finding new circumstances to extract fees. Frequently, she said, they charge clients for many different securities, even if the ratings all amount to the same thing: an assessment of a company's finances.
"They are rating every [bond issue] and charging for each [bond issue], but in reality, they're only rating the corporate" health, Bokides said. "It's a great business if you can get it."
For Moody's, the numbers add up: It rates more than 150,000 securities from about 23,000 borrowers, whose debt amounts to more than $30 trillion. Its revenue more than doubled in four years, to $1.25 billion in 2003, while its profit jumped 134 percent in that time.
The company said a rating costs between $50,000 and $300,000 for corporate borrowers. Moody's declined to provide a fee schedule, but according to a list obtained by The Washington Post, if it is the applicant's first rating in the past 12 months, there's an additional $33,000 fee. Then there's the monitoring fee ($20,000), a "rapid turnaround fee" ($20,000) and a cancellation fee (at least $33,000). For $50,000 more, a client can get an initial confidential rating.
S&P's fees are similar, according to a price list obtained by The Post.
The former finance chief of a major telecommunications firm was stunned when Moody's and S&P sent their initial bills. Each was six figures, not counting the annual maintenance fee. "I remember thinking their fees were outrageous," said the former executive, who spoke on the condition of anonymity for fear of angering the rating firms. When he asked his banker about the fees, the banker said, "You've got to pay S&P and Moody's."
So he paid.
"Yeah, it's expensive for a few phone calls and a little analysis," the former executive said. "But guess what? Especially when you're a public company, your options are limited. Really, you've only got S&P and Moody's."
Many schools and cities take the same view. The credit companies rate their debt as well, but charge much less, typically in the thousands or tens of thousands, depending on the size of the bond offering. Still, every fee seems to count.
Louis J. Verdelli Jr., a financial adviser to school districts and other localities, knows as much. A municipality dissatisfied with a credit rater can have a difficult time getting rid of it, said Verdelli, a managing director of Public Financial Management Inc. of Philadelphia.
