It was impossible for the three major credit-rating services to adequately assess Enron Corp.'s risks as it slid into bankruptcy because the company continually withheld vital information, executives of Standard & Poor's Corp., Moody's Investors Service and Fitch Ratings told Congress. But as they placed the blame on Enron's shoulders, the Securities and Exchange Commission announced it would launch a thorough examination, which may include hearings, into the role of rating agencies in the U.S. securities markets. Isaac C. Hunt Jr., SEC commissioner, suggested the time is right to reexamine the rating services' role in U.S. securities markets and examine the potential need for greater regulation in this area. Senate Governmental Affairs Committee chairman Joseph Lieberman reminded other committee members that the rating services have more access to a company's books than other analysts, as he opened a hearing to examine rating services' role in the Houston diversified energy supplier's collapse late last year. The lawmakers wanted to know why S&P, Moody's and Fitch were slow to downgrade their assessments of Enron, even while the company's stock was plummeting. The credit-raters are allowed to look at a company's inside information when making their assessments, and they are exempted from liability when they participate in securities offerings, Lieberman said. He also left open the possibility that more SEC regulation may be in order. "It seems reasonable that power of this magnitude should go hand-in-hand with some accountability," he said. "And yet, once the SEC anoints the credit-rating [services], they are left alone. So I think it's appropriate, as we try to learn the lessons of Enron, to ask if the agencies should have some sense of accountability-some oversight, from the SEC perhaps-to ensure they properly perform their function as watchdogs." Analysts from the rating services tried to give the senators a better understanding of what it is they do. Ron Barone, managing director of S&P, noted that while Enron maintained an investment-grade rating over the years, the rating reflected caution. From December 1995 until November 1, 2002, S&P rated Enron BBB+, which means S&P thought Enron had "adequate ability to repay debt, but [was] subject to worsening economic conditions." On November 9, the firm lowered Enron's rating to BBB-. On November 28, the day S&P determined Enron's merger with Dynegy Inc. was unlikely, it lowered Enron to B-, a non-investment-grade rating. Enron sought bankruptcy protection December 2, 2002. Barone told senators Enron executives were never happy with the credit ratings they received. "High-ranking Enron executives made repeated visits to New York over the years...to urge S&P to raise the company's rating to an A level," he said. But, Barone added, these executives misrepresented themselves as giving S&P all pertinent information about their business. In reality, he said, several things were missing, including the off-balance-sheet partnerships called Chewco, LJM1, LJM2 and Raptor. "Enron failed to bring these entities to our attention despite explicitly assuring S&P that it was providing a 'kitchen sink' analysis of its affiliated off-balance-sheet entities." John Diaz, managing director of Moody's, made many of the same points, and emphasized the steps Moody's takes to ensure analyst independence. Ratings are assigned by committee, and analysts are not compensated based on revenues associated with portfolios they rate. "No single issuer represents more than about 1.5% of Moody's total annual revenue," Diaz said, adding that last year, fees paid by Enron represented less than 0.25% of Moody's 2001 revenues. He focused on the next steps the industry must take. "We are looking more comprehensively at the role of so-called rating triggers, which can cause payment obligations to accelerate or require posting of collateral based upon a rating downgrade. We have enhanced our analysis of short-term corporate financial capacity-that is, liquidity-reviewing more thoroughly the sufficiency and certainty of an issuer's near-term sources of cash and credit under conditions of stress." Moody's also has intensified its assessment of liquidity risk for issuers with both investment-grade and speculative-grade ratings, and is focusing on corporate governance and how aggressive or conservative are a company's accounting practices. Ralph Pellecchia, senior director of Fitch Ratings' global power group, said his firm historically placed Enron in the lowest investment-grade category as well. From 1993 until fourth-quarter 2001, Fitch had a BBB+ rating on Enron. On October 25, Fitch placed Enron on watch for a negative rating revision, and on November 5, it downgraded Enron's senior debt to BBB-, the lowest possible investment-grade rating, and left the company on negative watch. On November 28, it lowered Enron to CC, which is junk-debt status. -Jodi Wetuski