McGraw Hill Financial Inc. will announce a $1.4 billion settlement with the U.S. and state governments Tuesday over claims the company’s Standard Poor’s unit inflated ratings on subprime mortgage bonds, according to two people with knowledge of the deal.
SP will not admit wrongdoing over allegations that it bent criteria to win business from Wall Street banks on deals leading up to the 2008 financial crisis, said one of the people, who asked not to be identified because the talks are private. The credit rater also will acknowledge that it has found no evidence to date that the federal lawsuit was retaliation for its reduction in the U.S. debt rating to AA+ from AAA in August 2011, the person said.
The U.S. government will receive about $687 million in the settlement with more than a dozen states splitting up the rest, according to the person. California will collect about $200 million, the person said.
The Justice Department sued SP in 2013 for fraudulently giving investment-grade ratings to mortgage-backed securities half a decade earlier and accused it of lying about its rankings being free from conflicts of interest.
In the ensuing legal battle, SP claimed the suit was retaliation for cutting the U.S. rating. SP was the only credit rater sued by the Justice Department, even though its competitors also issued top ratings for similar subprime-backed securities.
The Justice Department has denied there was any connection between the downgrade and the lawsuit.