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Fitch lowers rating on McGraw-Hill

NEW YORK (AP) -- Fitch Ratings on Thursday downgraded The McGraw-Hill Companies Inc. and put it on watch for possible further downgrades due to the lawsuit filed by the Obama administration against its S&P subsidiary.

The Justice Department on Tuesday filed a civil suit accused Standard & Poor's credit rating agency, a unit of McGraw-Hill, of failing to warn investors that the housing market was collapsing, because doing so would be bad for business. It claims S&P knowingly inflated ratings for risky mortgage investments and helped trigger the crisis. The suit demands $5 billion in penalties.

Fitch lowered McGraw-Hill's issuer default rating a notch in investment grade status to "BBB+" from "A-." It also placed the company's ratings on watch negative.

The rating agency said a regulatory or litigation-related risk has been historically incorporated with the ratings, but the Justice Department's recent actions have heightened the risk to the point it merited a ratings change.

Fitch said there is still the risk of related state attorney general lawsuits and other suits. Although the agency believes that the company has enough financial flexibility to absorb a material negative financial outcome from the DOJ suit or other lawsuits and keep investment-grade ratings.

Experts said the lawsuit could serve as a template for future action against Fitch and Moody's, the other two major credit rating agencies. High ratings from the three agencies made it possible for banks to sell trillions in risky investments. Some investors, including pension funds, can buy only securities that carry high credit ratings.