Splitting McGraw-Hill into two companies might be good news for shareholders, but Moody’s Investors Service doesn’t think it’s so attractive for debt holders. The credit rating agency has put McGraw-Hill’s $1.2 billion of debt on review for possible downgrade.

 “In the review, Moody’s will evaluate the loss of business and customer diversity resulting from the proposed spin-off of the education operations, which generated approximately 38% of LTM 6/30/11 revenue,” the ratings agency said.

“Moody’s will consider the effects of the spin-off of a significant portion of consolidated cash flow generation, the cyclicality of the retained businesses, and the expected greater relative bondholder exposure to the litigation and regulatory event risks associated with credit rating agency Standard & Poor’s. Moody’s will also evaluate McGraw-Hill’s projected financial profile and credit metrics following the spin-off, whether the company will generate any cash by placing debt at MH Education, and McGraw-Hill’s planned use of such cash and its free cash flow including how the company’s current dividend ($310 million LTM ended 6/30/11) will be allocated between MH Markets and MH Education,” the statement said.

That’s right; Moody’s will be reviewing the creditworthiness of its main competitor, S&P.

On Review for Possible Downgrade:
..Issuer: McGraw-Hill Companies (The)
….Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3
….Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently (P)A3
Outlook Actions:
..Issuer: McGraw-Hill Companies (The)
….Outlook, Changed To Rating Under Review From Negative