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The original was posted on /r/Superstonk by /u/throwawaylurker012 on 2023-06-26 17:09:52+00:00.
Pictured: MorningStar Credit Ratings
TL;DR:
- A month after the sneeze in February 2021, MorningStar Credit Ratings was fined by the SEC for violating federal securities laws in how it rated CMBS (commercial mortgage backed securities), for at least 30 billion worth of CMBS ratings over 2 years. MorningStar lied over credit enhancement techniques and information about these CMBS loans, saying that they were less risky so that they didn’t have to pay out to investors as much money.
- But before they could face even more music for more lies, MorningStar Credit Ratings SHUT DOWN, pulling all its CMBS ratings which would have included its “How Many More Lives?” report on GME and its effect on CMBS.
- MorningStar Credit Ratings may have been created by MorningStar in and around 2008/2009 to take advantage of Fed money. Fed wanted to jump start the CMBS market and needed then agencies to rate these CMBS Jenga towers, and Morningstar was willing and able to get that sweet Fed zipple despite being fined by the SEC and shut down years later.
- Despite this all, the MorningStar report on “The GameStop Loans” gives us an eye into 100+ loans and what CMBS packages they intersect with as far as GME stores going into pre-sneeze. It will be covered in even more detail in a later post.
For the (MorningStar meets The Big Short) culture: https://www.youtube.com/watch?v=9xZx1lf2tvs&t=28s
Sections
0. Preface
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Back in the
90s…, erm 2019s -
Meet Morningstar Credit Ratings
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Go On…
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Overlap
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A Canary by Any Other Name: Post Conduit Loans
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Credit Enhancement (or “Make CMBS Line Go Uppies!”)
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Don’t Trust Me Bro
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Lies, Damned Lies & Credit Agency Ratings
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Comeuppance Plz?
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NRSRO
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Put Some Pantera On
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Don’t Trust Me Bro =====================
Well no…all of this is just to say that Morningstar Credit Ratings is not our guiding angel during this time pre-sneeze.
Now why’s that? Coincidentally, a month AFTER the sneeze, back in February 2021, the SEC filed a civil action against Morningstar Credit Ratings LLC for violating “disclosure and internal controls provisions of the federal securities laws in rating [CMBS]”. 30 CMBS transactions worth $30 billion were incorrectly rated between 2015 and 2016.
So yeah, that company that we maybe banking on to give us an idea of what truly to expect about Gamestop’s loans, that was blasting all over the financial world the strong wording of “How Many More Lives?”–perhaps implying an imminent demise of Gamestop even as its own write-up said its CMBS impact was “minimal”–yeah, that Morningstar was incorrectly rating shit just like the credit ratings agencies were back in 08. Time is a flat circle:
“analysts to make undisclosed adjustments to key stresses in the model that it used in determining the rating for that transaction…According to the complaint, analysts frequently made these undisclosed adjustments to reduce the stress applied in the model and, by easing the stresses, Morningstar lowered the credit enhancement it required for many of the ratings it awarded classes of the CMBS transactions.”
So they made changes on the down low and the back-end, making the credit enhancements look BETTER than they actually were. So meaning, whatever they said was A-rated, was actually fucking worse. NOW WHY DOES THIS SOUND FAMILIAR? Sound 2008-y? Because it fucking was.
- Lies, Damned Lies and Credit Agency Ratings ==============================================
So looking as an example of how they could fuck investors, this might perhaps be used as a way to fuck investors if they were building up their rainy day fund–or more likely, go fuck yourself fund–using that excess spread method of “credit reduction”.
**This means that if they got 10% in mortgage money every month and were meant to pay 5% to investors, they were like “hold on, more risky means we pay them more…so MorningStar plz bby can you say it’s less”…**And MorningStar kissed the big banks or issuers that were paying for these ratings on their forehead and/or taint. Morningstar said “ofc bby” and then rated these as worth paying less interest. So 10 - 5=5% might be now 10-3=7%, giving the issuers a heftier and heftier gap of money to Scrooge McDuck in.
morningstar credit ratings, after another legit ratings well done
If you need a TL;DR, it comes down to this: MorningStar Credit Agency LIED about their ratings, which meant potentially RISKIER commercial mortgages–if they were accurately rated–would pay investors more so to avoid that they said they were A-ok so investors didn’t get as much money! SOUNDS FUCKING LEGIT.
- Comeuppance Plz? ===================
Ah these fuckers. So they rated a shit ton of issuers as LESS RISKY so that they would get paid more. And this was in February 2021? Let’s hope that these fuckers got some comeuppance and shit right after that SEC call outright?
MorningStar avoiding your poor credit enhancement techniques on your CMBS tower
I don’t think there are any sweet summer children left here, so you know the answer.
No. Fuck no.
Because as of a few months PRIOR to the SEC calling them out, MorningStar Credit Agency NO LONGER FUCKING EXISTED. Yeah, that’s right. Back in Nov. 2020, the entire thing fucking shut down:
“Morningstar Credit Ratings, LLC (“Morningstar”) no longer operates as a credit rating agency. Effective November 23, 2020, DBRS, Inc. no longer identifies Morningstar as a credit rating affiliate. Morningstar no longer updates or maintains the historical content or information regarding previously withdrawn Morningstar credit ratings that is available on this website.Morningstar Credit Ratings, LLC (“Morningstar”) has withdrawn all of its credit ratings. Morningstar does not issue or monitor credit ratings. Morningstar no longer updates or maintains the historical content or information regarding previously withdrawn Morningstar credit ratings that is available on this website.”
So literally, the entire thing not only fucking shut down but it WITHDREW ALL ITS FUCKING RATINGS BEFORE IT GOT CALLED OUT BY THE SEC.
- NRSRO =========
I know some of you can see this section header and already see some letters you don’t like: SRO. But in this case, it’s (somewhat) different. And you can see that NRSRO header in the screenshot just a bit above when Morningstar Credit Ratings reported it was shutting down…
In June 2008, coincidentally near the height of the financial crisis when other rating agencies were in the shit for fucking the global economy with lies, Morningstar Credit Ratings was let in to the big boys as a Nationally Recognized Statistical Rating Organization, or NRSRO. Although it had only applied to rate asset-backed securities (such as CMBS), it later got the chance to rate financial institutions and corporate issues in eight years time.
But wait, why was it the the next year in December 2009 that Morningstar entered the credit ratings market. I wonder why Morningstar entered the credit ratings market?
“In its latest move to jump-start the illiquid market for commercial mortgage-backed securities (“CMBS”) and spur commercial real estate lending, the Federal Reserve Board of Governors (“Federal Reserve”) announced on Tuesday the anticipated expansion of the Term Asset-Backed Securities Loan Facility (“TALF”) to include certain highly rated “legacy CMBS” issued before January 1, 2009 as eligible collateral. This most recent expansion of TALF marks the first addition of a “legacy” asset class to the list of TALF-eligible collateral and follows the Federal Reserve’s announcement earlier this month that newly issued, highly rated CMBS would become TALF-eligible collateral beginning in June. The initial TALF subscription for legacy CMBS is expected to occur in late July.
On Tuesday, the Federal Reserve also expanded the number of credit-rating firms qualified to rate TALF-eligible collateral and released details regarding the pre-certification process for eligible borrowers who seek pre-clearance to qualify for a TALF loan.”
as always, fuck these Fed assholes
So the Federal Reserve Board of Gove…
Content cut off. Read original on https://www.reddit.com/r/Superstonk/comments/14jn26g/the_big_mall_short_12_the_gamestop_loans/