When the Krolls founded K2 Global Partners in 2009, the plan was to incubate two new ventures. Jeremy would head K2 Global Consulting, while Jules ran Kroll Bond Ratings (KBR), a new agency that would compete with Standard & Poor’s, Moody’s, and Fitch.

The Krolls are betting that shell-shocked bond investors will be attracted by the idea of a new agency that brings the Kroll investigative DNA to the ratings business. In August 2010, KBR acquired LACE Financial, a subscription-based ratings service, and is now legally capable of issuing its own ratings, the first of which are planned for the first quarter of 2011.

And talk about synergy: KBR will use K2 for due diligence work. “The hope is that issuers, underwriters, and buyers of fixed income will want to tap into K2’s investigative abilities, the forensics, and their known ability to look a little deeper,” says famed value investor Michael Price, a KBR board member.

Kroll intends to rate underwriters’ processes for originating and packaging loans. Occasionally, KBR will even evaluate the creditworthiness of the borrowers themselves. All this will cost more than simply running bonds through a computer model, but Jules Kroll doesn’t see that as a problem. “Moody’s had the highest operating margins in the S&P 500 from 2001 to 2007,” he says. “Around 60%! I’m fat, dumb, and happy at 20%, so there are no worries there.”

At 69, Kroll may seem old to be launching a startup in an industry dominated by a powerful oligopoly. Why not just focus on K2? Or even retire? “Look, I like to see change come about, and this is an opportunity to make some,” he says. “But do I have a 10-year business horizon? No, I don’t. I’ve got a five-year one. At some point, I’ve got to hang up my cleats.” –D.M.

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