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U.S. Entities And Issues Suffer Knock-On Effects Of U.S. Government's CreditWatch Negative

Publication date: 15-Jul-2011 19:50:13 BST

(Editor's Note: This article, published earlier today, incorrectly stated the 
number of U.S. structured finance transactions and funds affected. A corrected 
version follows.)

NEW YORK (Standard & Poor's) July 15, 2011--Standard & Poor's Ratings Services 
is in the process of putting a number of U.S-based entities with direct links 
to, or reliance on, the federal government on CreditWatch with negative 
implications after yesterday's placement of the sovereign credit ratings on 
the United States of America on CreditWatch negative.

Among the entities and specific debt issues suffering the downstream effect of 
yesterday's action are certain 'AAA' rated insurers; clearinghouses and 
central securities depositories; select 'AAA' rated government-related 
entities (GREs); debt issued by financial institutions under the Temporary 
Liquidity Guarantee Program (TLGP); and certain fixed-income funds, 
exchange-traded funds, and hedge funds, as well as local government investment 
pools, and unit investment trusts.

The ratings on U.S.-based 'AAA' rated state governments and nonfinancial 
corporate issuers are unaffected.

The action on the U.S. government's 'AAA' long-term and 'A-1+' short-term 
ratings reflects our view of two issues: the failure to raise the federal debt 
ceiling so as to ensure that the government will be able to continue to make 
scheduled payments on its obligations, and our view of the likelihood that 
Congress and the Obama Administration will agree upon a credible, medium-term 
fiscal consolidation plan in the foreseeable future. (See "United States Of 
America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of 
Policy Stalemate," published July 14, 2011.)

As it stands, we see at least a one-in-two likelihood that we could lower the 
long-term rating on the U.S. within the next three months-–by one or more 
notches, into the 'AA' category–-if we conclude that Washington hasn't reached 
agreement on the latter of these two issues.

In addition to placing U.S. insurance groups' long-term counterparty credit 
and financial strength ratings, as well as related issue ratings, on 
CreditWatch negative, we are doing so for the 'AA' ratings on $5.75 billion of 
surplus notes issued by three of the affected insurers. We factor direct and 
indirect sovereign risks such as economic volatility, potential currency 
devaluation, and investment portfolio deterioration into our financial 
strength ratings. As per our criteria, the sovereign local currency rating 
constrains our financial strength ratings on insurers.

We are also placing on CreditWatch negative the ratings of 125 FDIC-guaranteed 
'AAA' rated debt obligations issued by 30 financial institutions under the 
TLGP, as well as eight federal leases and certain power-generation entities 
linked to the federal government.

Of the 206 rated funds managed in the U.S., Europe, and Bermuda, we are taking 
action on 73 of these because of their significant exposure to the U.S. 
sovereign credit ratings, either through direct or indirect investments in 
U.S. Treasury and U.S. government agency securities.

We are also placing the ratings on 604 U.S. structured finance transactions on 
CreditWatch negative. These transactions had an original issuance amount of 
$373.67 billion-–or less than 3% of the structured finance transactions we 
rate globally. Most structured finance securities are supported by collateral 
whose credit quality is not directly linked to the sovereign rating of the 

Standard & Poor's will publish articles detailing the specific entities and 
issues that are being placed on CreditWatch negative.

Related Research

"Special Report:  U.S. Negative CreditWatch Placement And The Knock-On Effects,
" published July 18, 2011

Standard & Poor's, a part of The McGraw-Hill Companies (NYSE:MHP), is the 
world's foremost provider of credit ratings. With offices in 23 countries, 
Standard & Poor's is an important part of the world's financial infrastructure 
and has played a leading role for 150 years in providing investors with 
information and independent benchmarks for their investment and financial 
decisions. For more information, visit
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