Fannie Mae and Freddie Mac's corporate debt ratings shouldn't be downgraded in the near term as a result of the Treasury Department's to-be-released government-sponsored enterprise reform plan, Fitch Ratings said.
Both companies depend highly on government support because of the
For the ratings to be cut, Fitch's view of this governmental support would have to change, and the rating agency said that was unlikely over a one-to-two year horizon.
Fitch expects the Treasury report,
As long as the two companies remain in conservatorship, their ratings will be linked to the government's. "In the absence of a formal support agreement, Fannie and Freddie's ratings would be based solely on Fitch's assessment of the stand-alone creditworthiness of the respective entities. Fitch estimates Fannie and Freddie's likely stand-alone rating could be in the 'A' to 'AA' category depending on the level of capitalization," a press release said.
The rating agency's base case assumption about the plan is that "the PSPA funding availability for Fannie and Freddie would not change should the authorities allow them to begin building capital. In December 2017, when the PSPA was amended to allow Fannie and Freddie to retain capital cushions of $3 billion, PSPA funding availability did not change."
Fannie Mae reported
The status quo on the regulatory front for Fannie Mae most likely lies ahead of the 2020 elections, said B. Riley FBR analyst Randy Binner, who added "there is potential for positive catalysts around the Treasury sweep. We believe that Fannie Mae's equity value has a range of potential outcomes, but that positive equity value can be maintained, highlighting the potential value of the junior preferreds. We have updated our valuation approach for Fannie, moving required capital to 4%, adding an approximate $4 billion pretax charge, due to the first quarter 2020 CECL implementation, and updated our reform probability weights to 50-50."
It has been reported the GSEs might need to
Binner is the only stock analyst