Unifying muni, corp debt scales to cost little-CBO

WASHINGTON, Sept 5 (Reuters) - Credit ratings agencies and the federal government would face relatively small cost increases if a municipal bond bill recently passed by a U.S. House of Representatives committee were to become law, according to a report released on Friday.

The bill, which requires that the federal government collect data on the bond insurance industry, would cost the U.S. government about $1 million in 2009 and less than $1 million each year, the Congressional Budget office said.

The bill also requires credit rating agencies to use the same scales for assessing tax-exempt and corporate debt,

By law, the U.S. Congress cannot mandate changes in the private sector that have burdensome expenses. For the rating agencies to comply with the bill's requirements, the costs "would likely be small because those agencies already have the ability to rate all securities by the same scale and some are already moving in this direction," the CBO reported.

The non-partisan CBO said the costs would fall below the $136 million annual threshold as determined in the Unfunded Mandates Reform Act.

When the U.S. bond insurance industry began faltering earlier this year, some issuers, including the state of California, began pressuring the three ratings agencies to change how municipal bonds are graded.

The lower a bond's rating, the more its issuer must pay in interest. In order to keep debt costs down, issuers had bought insurance and used the insurers' top-grade ratings. Then, the bond insurers were downgraded or threatened with downgrades and bonds were left to trade on their underlying ratings.

Moody's Investor Services (MCO.N: Quote, Profile, Research, Stock Buzz) said on Monday it would start putting most munis on the same scale as corporate bonds in October. Fimalac SA's (LBCP.PA: Quote, Profile, Research, Stock Buzz) Fitch Ratings is also considering harmonizing its two debt scales, while McGraw-Hill Co's (MHP.N: Quote, Profile, Research, Stock Buzz) Standard & Poor's Ratings Services has said it already uses the same ratings for all structured finance, corporate and municipal debt. (Reporting by Lisa Lambert; Editing by Tom Hals)