Preferred stock lowered to Ca from Baa3, BFSR to E+ from D+
Moody's Investors Service affirmed the Aaa senior long-term debt, Prime-1 short-term debt, and Aa2 subordinated debt ratings of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) following the actions taken today by the U.S Treasury to support both companies and their placement into conservatorship by the Federal Housing Finance Agency. At the same time, Moody's lowered the preferred stock ratings for both companies to Ca from Baa3 and lowered their Bank Financial Strength Ratings (BFSR) to E+ from D+. The ratings outlook is stable for both companies.
Fannie Mae's and Freddie Mac's Aaa senior long-term, Prime-1 short-term and Aa2 subordinated debt ratings were affirmed based on Moody's view that today's actions provide further evidence of the very high degree of systemic support for both entities because of their central role in mortgage finance in the United States, as well as the importance of housing within in the U.S. economy. The conservatorship of both firms does not limit in any way their ability to service their senior or subordinated debt obligations. Moody's believes that the extensive capital and liquidity support provided today by the U.S. Treasury, together with the public statements of the Treasury and the Federal Housing Finance Agency, provides a clear indication of Treasury's and FHFA's intention that these obligations will continue to be paid on a timely basis.
The downgrade of the preferred stock ratings reflects the conservator's decision to suspend the noncumulative preferred stock dividends at both firms, as well as Moody's expectation that those dividends will likely be suspended for several years. Nonetheless, Moody's believes that a liquidation of either firm remains unlikely, and thus the expected loss on the preferred stock is not total.
Moody's said the downgrade of the BFSRs reflects Moody's view that Fannie Mae's and Freddie Mac's financial flexibility has become extremely limited, a fact that led the Federal Housing Finance Agency to place these firms into conservatorship and the U.S. Treasury to provide additional equity and liquidity commitments in order to ensure they can pursue their public policy mission of providing liquidity, stability and affordability to the US housing market. Similarly, the Baseline Credit Assessment for each of Fannie Mae and Freddie Mac was lowered to 15 rom
10. A Baseline Credit Assessment of 15 maps to a B2 rating on the Moody's long-term debt rating scale. Moody's BFSR and Baseline Credit Assessment reflects a firm's intrinsic financial strength and does not incorporate any form of external support that such a firm may receive.
Moody's also placed the Aa2 preferred stock ratings of Home Ownership Funding Corporation and Home Ownership Funding Corporation II on review with direction uncertain. Both companies are REIT subsidiaries of Freddie Mac. The review will consider whether or not today's actions taken by the US Treasury will affect the ability of the REITs to distribute dividends, and will also consider the extent to which the high degree of over collateralization at both REITS benefits its preferred shareholders.
The following ratings were affirmed with a stable outlook:
Fannie Mae and Freddie Mac - Senior long-term debt at Aaa; Short-term debt at Prime-1; Subordinated debt at Aa2.
The following ratings were downgraded:
Fannie Mae and Freddie Mac -- Bank financial strength rating to E+ from D+; Preferred stock to Ca from Baa3; all with a stable outlook
The following ratings were placed on review with direction uncertain:
Home Ownership Funding Corporation and Home Ownership Funding Corporation II -- Preferred Stock at Aa2.
Moody's last rating action on Fannie Mae and Freddie Mac occurred on August 22, 2008.
Federal National Mortgage Association -- Fannie Mae (NYSE: FNM) -- is a publicly held, federally chartered US Government-Sponsored Enterprise. It is the largest conduit for residential mortgage finance in the USA, and is regulated by the Federal Housing Finance Agency. As of June 30, 2008, Fannie Mae's retained portfolio and book of business was $750 billion and $3.0 trillion, respectively.
Federal Home Loan Mortgage Corporation -- Freddie Mac (NYSE: FRE) -- is a publicly held, federally chartered US Government-Sponsored Enterprise. It is one of the largest conduits for residential mortgage finance in the USA, and is regulated by the Federal Housing Finance Agency. As of June 30, 2008, Freddie Mac's retained portfolio and total mortgage portfolio was $792 billion and $2.2 trillion, respectively.
Moody's will host a teleconference on these rating actions on Tuesday, September 9, 2008 at 11:00am EDT. Please see moodys.com for further information.
--www.theasianbanker.com (September 8 2008)--
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