Financial Sting

The company and regulators “settled this matter to avoid the delay, uncertainty, inconvenience, and expense of further litigation,” Catherine Mathis, an S&P spokeswoman, said in a release. The settlements will be reflected in the company’s 2014 full-year financial statements and fourth-quarter results that will be released on Feb. 12, the company said.

The settlement arguably delivers a greater financial sting to McGraw Hill than did last year’s deals with the banks that admitted they misled investors about the quality of securities assembled from subprime loans. S&P’s cash payout is equivalent to about a year and a half of profit for McGraw Hill.

By comparison, the majority of the Justice Department’s $16.7 billion settlement with Bank of America represented a pledge that the bank would write down or forgive mortgage-holder debt; the bank’s cash payout was $9.7 billion, or about 85 percent of its year-earlier profit. Also in 2014, Citigroup’s $7 billion settlement with the Justice Department required it to pay out $3.8 billion in cash -- roughly the equivalent of its second-quarter profit that year.

Net income at McGraw Hill amounted to about $964 million last year, according to six analyst estimates compiled by Bloomberg.

Discussions Derailed

In late 2012, the Justice Department began settlement talks with S&P over the company’s ratings of the subprime mortgage- backed bonds. The discussions were derailed when S&P refused to admit wrongdoing, according to a person familiar with the talks.

In February 2013, the government sued S&P, alleging it awarded investment-grade ratings to those securities in a bid to win business and accused it of lying about its rankings being free from conflicts of interest.

In court filings, Harold W. McGraw III, chairman of McGraw Hill, said that Timothy Geithner, who was Treasury secretary at the time, had called him days after S&P downgraded the U.S. debt in August 2011 and told him the company would be held accountable for its action.

Geithner told McGraw there would be a “response” to the downgrade, McGraw said in the filings. McGraw, who was also CEO when the suit was filed, said in February 2013 that his company would fight “vigorously” against the “meritless” claims.