Merrill Lynch discards 'marketweight' recommendations for credit and adopts new 'action-oriented' rating scale

By E. Janene Geiss

Philadelphia, Nov. 21 - Merrill Lynch announced Monday a new "action-oriented" rating scale for U.S. Credit Research.

In response to client feedback, Merrill Lynch said it removed the "marketweight" recommendation and is adopting what it believes will be a more relevant and simple scale that quantifies each recommendation in relation to investors' investment guidelines.

"We wanted to introduce a simple ratings system to reflect the needs of hedge funds, banks and CDO managers as well as index-benchmarked funds," Marc Pinto, head of Americas credit research, said in the release. "It's a response to the key questions institutional investors want answers on - should I trade today at current spreads? And what is driving returns - price or yield?"

The new scale applies the same formula to underweight recommendations as it does to overweight calls, reflecting institutional investors' ability to go short or buy protection on a credit, according to a company news release.

Discarding marketweight, which was established 10 years ago, means that every recommendation will be assigned a direction, either positive or negative, reflecting the view that a marketweight recommendation is of limited value to clients, officials said.

Adopting a numerical scale, Overweight-100% to Underweight-100%, enables Merrill Lynch to offer more precise recommendations, officials said. Intermediate points are at 30% and 70%.

Merrill Lynch also said the new system features a three-month time scale instead of a 12-month view. The shorter time frame allows for incremental adjustments and makes the scale more relevant.

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