"Rating is an art, not a science," S&P said in an outline of its opening submissions obtained by AFP.
"There is no one procedure for all ratings and indeed there is no 'correct' procedure for ratings or even the concept of a 'correct' or 'right' rating."
The 13 Australian towns that are suing S&P lost Aus$15 million (US$14.3 million at current rates) after investing in Constant Proportion Debt Obligation notes (CPDOs) or "Rembrandts".
They accuse S&P of "significant errors" in giving the notes a top-notch triple-A rating.
But in its outline, the ratings agency said the process it took in assessing the products concerned was "rigorous and entirely reasonable".
"It was also entirely reasonable for the (ratings) Committee in each instance to form an opinion that 'AAA' was an appropriate rating," it said in the 32-page document dated September 30, which it stressed was not a comprehensive statement.
The agency said any rating was an opinion about possible future events and "not a statement of fact" and the assignment of a "AAA" did not mean that S&P had determined that instrument would not default.
"Indeed, no one can make that sort of determination about events in the future," it argued.
"Instead, that rating means that by comparison with other instruments with lower credit ratings, S&P believes it is less likely to default than those other instruments."
S&P said it expressly warned its users about the limited nature of ratings, adding that what eventually happened in the market during the global financial crisis -- and what eventually led CPDOs as a group to fail -- was unprecedented in history.
It denied the assertions that S&P did not have its own internal model with which to assess the complicated financial products or relied heavily on the Rembrandts' creator, RBS subsidiary ABN AMRO, in its rating process.
And it said no statement made by S&P was false or materially misleading.
The councils were sold the notes by Australian firm Local Government Financial Service in late 2006, assured they had a less than one percent chance of failing. Within two years the synthetic derivatives had crashed.S&P and ABN AMRO are both contesting the case, and have also filed counter-suits against one another.