the U.S. Treasury has demonstrated explicit support by providing these enti- ties with capital quarterly, as necessary.
The downgrades of 10 of the 12 FHLBs and the FHLB System’s senior debt reflect a one-notch reduction in the U.S. sover- eign rating. Before we downgraded the U.S., under our GRE criteria, 10 of the 12 FHLB banks were rated ‘AAA’, the same level as the U.S. sovereign because they have either ‘aa+’ or ‘aa’ stand-alone credit profiles and we classify them as having a very high likelihood of receiving support from the government if needed. The FHLBs of Chicago and Seattle were already rated ‘AA+’ prior to the U.S. sov- ereign downgrade as they have lower stand-alone credit profiles (‘aa-’ and ‘a+’, respectively) than the other 10 FHLBs. The FHLB System is classified as being almost certain to receive government sup- port if necessary under our GRE criteria. Thus, the FHLB System debt is rated at the same level as the U.S. sovereign rating. The implicit support that we factor into the issuer and issue credit ratings relates to the important role the FHLBs and the FHLB System play as primary liquidity providers to U.S. mortgage and housing- market participants.
The downgrade of the senior debt issued by the Farm Credit System reflects a one- notch reduction in the U.S. sovereign rating. Under our GRE criteria, the Farm Credit System is classified as having a very high likelihood of receiving support from the government if needed. The Farm Credit System’s stand-alone credit profile is ‘aa’. Thus, under our criteria, the notches of uplift that we factor into the ratings on debt issued by the System decrease to one notch from two notches when the sover- eign has a ‘AA+’ rating rather than a ‘AAA’ rating. The issuer credit ratings on the four Farm Credit System Banks that we rate are unaffected by the downgrade
of the U.S. sovereign given their ‘a+’ stand- alone credit ratings and high likelihood of support classification under our GRE cri- teria. The implicit government support that we factor into our ratings for the Farm Credit System debt and the four rated banks considers the system’s mission to provide stable and reliable funding to the U.S. agricultural and rural sectors.
We have also lowered the ratings on 126 Federal Deposit Insurance Corp.-guaran- teed debt issues from 30 financial institu- tions under the Temporary Liquidity Guarantee Program (TLGP), and four National Credit Union Association-guar- anteed debt issues from two corporate credit unions under the Temporary Corporate Credit Union Guarantee Program (TCCUGP) to ‘AA+’ from ‘AAA’. The downgrades on the TLGP and TCCUGP issues reflect their direct credit support from the U.S. Treasury for timely and ultimate repayment.
The TLGP was formed to facilitate capital-markets borrowing for U.S. banks and bank holding companies during the global credit crisis. Similarly, the TCCUGP was formed to assist cor- porate credit unions that ran into finan- cial difficulties as a result of significant losses in their investment portfolios.
(For related rating actions on other U.S. financial services companies, please see “Ratings On The U.S. Central Securities Depository And Three Clearinghouses Lowered” on p. 52.) CW
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Under our GRE criteria, the Farm Credit System is classified as having a very high likelihood of receiving support from the government if needed.
Matthew Albrecht New York (1) 212-438-1867
Daniel E. Teclaw New York (1) 212-438-8716
Sunsierre Newsome New York (1) 212-438-2421
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