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CHICAGO--(BUSINESS WIRE)--Fitch
Ratings has affirmed the long- and short-term Issuer Default Ratings (IDR) and
senior debt ratings of Fannie Mae (FNM) and Freddie Mac (FRE) at 'AAA' and
'F1+', respectively. The 'AAA' IDRs reflect the government support rating of
'1'. The Rating Outlook on the long-term IDR for both government-sponsored
enterprises (GSEs) is Stable.
Fitch has also affirmed the U.S. federal government 'AAA/F1+' sovereign
credit ratings with a Stable Outlook. Though the fiscal risks associated with
Treasury support for the GSEs are substantial, in themselves they do not imperil
the US 'AAA' status. Despite the marked deterioration in budgetary performance
and rise in government debt, overall indebtedness remains comparable with other
large 'AAA' sovereigns such as France and Germany.
Fitch has also downgraded FNM and FRE's preferred stock to 'C/RR6' from
'BBB-'. The downgrade of the preferred stock reflects the subordination of the
preferred to any Treasury interest and interest payments are unlikely to resume
in the foreseeable future. Thus, any recovery is expected to be minimal.
Additionally, Fitch has placed the 'AA-' subordinated debt ratings for both
FNM and FRE on Rating Watch Evolving. Treasury's preferred securities will rank
below subordinated debt-holders. FHFA management stated that interest will
continue to be paid on the subordinated debt and the deferral requirements now
in place will be waived. Fitch will evaluate the terms and conditions of
Treasury's agreement to determine the appropriate subordinated debt rating. A
complete list of rating actions follows the end of the press release.
Fitch's rating actions follow the Federal Housing Finance Agency's (FHFA)
declaration of conservatorship over the two institutions. Treasury has enacted a
plan to inject preferred stock in these entities as needed to maintain solvency
that will be senior to existing preferred stock. Dividends will cease for
preferred and common stockholders. Interest paid to Treasury in exchange for its
support will result in continued subordination of preferred shares to Treasury's
interest since the interest rate is substantially above either firm's current
rate of return.
Fitch believes Treasury's actions are meant to ensure the GSEs maintain
continued access to debt markets to allow them to refinance maturing debt and
stabilize the mortgage market as a whole. The growth cap is expected to minimize
interest rate risk assumption but provide ongoing liquidity in the short term.
Execution to impart market confidence in such crisis environments is of some
concern since actions may have unintended consequences.
Fitch has downgraded the following ratings:
Fannie Mae
--Preferred stock to 'C/RR6' from 'BBB-'.
Freddie Mac
--Preferred stock to 'C/RR6' from 'BBB-'.
The preferred stock is removed from Rating Watch Negative.
Fitch has assigned the following Recovery Ratings (RRs):
Fannie Mae
--Preferred stock 'RR6'.
Freddie Mac
--Preferred stock 'RR6'.
Fitch has also placed the following debt on Rating Watch Evolving:
Fannie Mae
--Subordinated debt 'AA-'.
Freddie Mac
--Subordinated debt 'AA-'.
Additionally, Fitch has affirmed the following ratings:
Freddie Mac
--Long-term IDR at 'AAA';
--Senior unsecured at 'AAA;
--Short-term IDR at 'F1+';
--Subordinated Debt at 'AA-'.
--Support rating at '1';
--Support floor at 'AAA'.
Fannie Mae
--Long-term IDR at 'AAA';
--Senior unsecured at 'AAA';
--Short-term IDR at 'F1+';
--Subordinated Debt at 'AA-'.
--Support rating at '1';
--Support floor at 'AAA'.
Fitch's rating definitions and the terms of use of such ratings are available
on the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.
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