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.
Fitch Ratings
Eileen Fahey, +1-312-368-5468 (Chicago)
James Moss, +1-312-368-3213 (Chicago)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)
