Credit ratings giant Moody's (MCO) recently reported a +14% jump in second-quarter revenues, which reached $511 million. Domestic revenues increased +16% to $328 million, while those generated in foreign markets rose +11% to $183 million.

Despite interest rates having marched steadily higher over the past two years, Moody's core ratings business remains robust. Thanks to an active merger & acquisition (M&A) environment and low borrowing costs, issuance of both investment-grade and high-yield corporate bonds remains strong. As a result, global corporate finance revenues spiked +36% for the period.

Meanwhile, the structured finance business, Moody's largest at 42% of revenues, also reported solid results. This segment, which includes credit derivatives and mortgage-backed securities, posted healthy top-line growth of +13% for the quarter.

Aside from determining the creditworthiness of borrowers, Moody's also generates substantial revenues by offering credit research and related analytical software. During the quarter, research revenues rose +19% to $63 million, and Moody's KMV, a subsidiary that provides risk assessment software to banks and institutional investors, added another $35 million in subscription and licensing revenues.

All of this added up to a solid +14% gain in operating income to $289 million, with operating margins remaining at a stellar level above 55%. Better still, with an aggressive stock buyback program reducing the outstanding share count by 14 million shares, earnings were able to rise +26% to $0.59 per share, handily topping Wall Street estimates for earnings of $0.56 per share.

Taking a broader look at the overall market, the ratings business is essentially a duopoly between two firms -- Standard & Poor's and Moody's. In the U.S., ratings agencies are certified and regulated by the government, thus, there is a regulatory barrier preventing new firms from entering the business to compete with these two giants.

These two firms together control 80% or more of the global ratings business. And although a handful of smaller players also compete in this market, most debt issuers prefer to have their deals rated by S&P and Moody's, as it adds additional weight and legitimacy to their offerings. This is also true outside the U.S.

There have been some attempts to break this near monopoly. Most recently, Congress has proposed new legislation that would make it easier for firms to be certified as ratings agencies. But the effects of this legislation are likely to be minimal. The two major ratings firms have spent years establishing credibility and relationships with institutional investors and issuing companies. Thus, it will be hard for new competitors to break into the business and take significant share. In addition, recent regulatory proposals would require new entrants to wait a full three years before entering this market.

In the meantime, Moody's continues to deliver outstanding results. Along with its recently quarterly earnings release, Moody's also lifted its full-year guidance, with earnings growth now projected to be in the "mid-to-high teens." Investors applauded the upbeat forecast, and the shares have rallied nicely in recent weeks. The gains were also welcome news to Berkshire Hathaway (BRKa), which holds a 16.5% stake in the company, making it by far Moody's largest shareholder.

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