Moody’s has created a new five-point rating scale for money market funds to take into account factors that proved to be critical in the credit crisis, including: a fund portfolio’s underlying asset quality, ability to preserve principal while providing liquidity, susceptibility to market risk and the likelihood of support from its sponsor in the event of a “run” on the fund.

The credit crisis subjected money market funds to “significant stresses that the sector had not previously experienced,” Moody’s said, pointing to Lehman Brothers’ insolvency, the collapse of the Reserve Primary Fund and the inability of 30 other funds to meet redemptions in September 2008.

Thus, the new scale looks at such key factors as asset profile, weighted average maturity and obligor concentration. The ratings scale also takes into account a fund’s sensitivity to interest rate shifts, ranging from MF1+, for the highest rating, to MF4, the weakest. Heretofore, Moody’s has used a slightly modified version of its traditional long-term rating scale (Aaa to C) to rate money market funds.

Moody’s is seeking input from market participants on this proposed new scale over the next 60 days, by Nov. 5, at: The proposed ratings can be found at under the title “Moody’s Proposes New Money Market Fund Rating Methodology and Symbols.”

The ratings clarify the difference between Moody’s money market fund ratings and traditional debt ratings, explained Yaron Ernst, managing director of Moody’s global managed investments group. “The new methodology will provide investors with more differentiation among money market funds, and more transparency regarding the key factors that affect a fund’s ability to meet its objectives,” Ernst said.

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