Calpers, Moody's settle suit over mortgage deals for $130 million

(Reuters) - California's public pension system, Calpers, said it has reached a $130 million settlement with Moody's and Moody's Investors' Service to resolve a case involving inflated grades of residential mortgage deals that later faltered.

The lawsuit stems from losses the pension fund suffered after the collapse of the housing market and defaults on formerly AAA-rated securities that were backed by pools of residential mortgages, Calpers said in a statement.

The California Public Employees Retirement System, or Calpers, brought the lawsuit against Moody's and other rating agencies in 2009.

Calpers, the largest pension fund in the United States, has previously settled with Fitch Ratings and Standard & Poor's, the other rating agencies that were named in the lawsuit.

S&P, a unit of McGraw Hill Financial Inc, settled with Calpers in February last year for $125 million.

The settlements rank as the largest known recovery from Moody's and S&P in a private lawsuit for civil damages, Calpers said.

(Reporting by Aurindom Mukherjee in Bengaluru; Editing by Savio D'Souza)

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