S&P Follows Up Its US Outlook Warning With A Comparable One For The GSEs And The FHLB System

Tyler Durden's picture

From S&P, which does the logical follow up to its earlier US outlook warning, and revises its GSE and FHLB outlook to negative.

NEW YORK (Standard & Poor's) April 20, 2011--Standard & Poor's Ratings  Services said today that it revised its outlooks on the debt issues of Fannie Mae, Freddie Mac, the Federal Home Loan Bank System, and the Farm Credit System Banks to negative from stable while affirming our respective debt issue ratings.

We also revised our outlook to negative from stable for 10 of the 12 individual Federal Home Loan Banks while affirming their 'AAA' long-term counterparty credit ratings. The outlooks on the Federal Home Loan Banks in Chicago and Seattle were not affected, nor were the ratings on the individual Farm Credit banks. These changes reflect our revision of the outlook on the United States of America to negative from stable (AAA/Negative/A-1+; please see  United States of America ‘AAA/A-1+’ Rating Affirmed; Outlook Revised To Negative, published April 18, 2011, on RatingsDirect for further details).

Per our government-related entity (GRE) criteria, the ratings on the GREs noted above are constrained by the long-term sovereign rating on the U.S. We derive our opinion of the support included in the ratings based on the links and roles attached to the supporting entity, the U.S. government. We also factor direct and indirect sovereign risks, such as the impact of macroeconomic volatility, currency devaluation, asset impairment, or investment portfolio deterioration, into our stand-alone credit profile ratings.

We will not raise our outlooks and ratings on these entities above those on the U.S. government as long as the ratings and outlook on the U.S. remain unchanged. Conversely, if we were to lower the ratings on the U.S., we would also likely lower the ratings on the debt of these GREs as well as our issuer credit ratings on relevant individual GRE entities.