Moody’s Says Activists Threaten Credit Ratings

Mar 13 2014 | 11:25am ET

Ratings agency Moody’s Investors Service has fired a shot across the bow of shareholder activists, warning that their increasingly successful efforts are bad news for bondholders.

In a report this week, Moody’s said that activist-led companies are at increased risk of default and could suffer ratings downgrades. The agency cited activists’ frequent demand to return cash to shareholders, which it warns could decrease a company’s debt cushion.

“Activism is rarely good news for creditors,” Moody’s concluded.

Unfortunately for bondholders, they can expect more of it: Moody’s said it saw campaigns against 56 companies it rates last year, and expects to see more targeted in the future.

It’s easy to see why: According to Factset, activist investors won more board seats last year than in any year since 2009. “The widespread support activists are getting from mainstream institutional investors is undoubtedly a key driver of the increased willingness of companies to offer up board representation,” it wrote.

Moody’s report comes after it weighed in on Corvex Management’s bid to oust the board of directors at CommonWealth REIT. While that campaign has won the backing of major proxy advisors and is expected to succeed, Moody’s said on Friday it was reviewing CommonWealth’s debt for a possible downgrade, pending the outcome of the vote.


In Depth

FINtech Focus: Fundbase Aims To Revolutionize Access To Hedge Funds

Jan 23 2015 | 11:03am ET

Global investment in financial technology—also known as fintech—is booming....

Lifestyle

Is Steven Cohen Going to Buy the Brooklyn Nets?

Jan 19 2015 | 6:49am ET

Rumors that Steve Cohen was interested in the Brooklyn Nets emerged after Scott...

Guest Contributor

Investors Benefit From Evolution Of Fund Of Hedge Funds Model

Jan 22 2015 | 12:27pm ET

The evolution of the fund of hedge funds model over the last few years represents...

 

Editor's Note