S&P Increases Fannie, Freddie Subordinated Debt Ratings to AA-

Standard & Poor’s raised its ratings on Fannie Mae and Freddie Mac subordinated bonds by two levels to AA-, citing increased confidence the government will continue its support of the debt.

The credit grader affirmed its AA+ rankings of the mortgage-finance companies’ senior debt, which matches its assessment of the U.S. government that it views as ready to provide aid to protect the firms’ creditors as needed, according to a statement late yesterday.

The government vowed to support the companies’ senior and subordinated debt after placing them into conservatorships in 2008, according to the report. The Treasury suspended the junior debt’s interest-deferral covenant, contrasting with its decision to halt dividends on preferred securities, which S&P rates D, according to the statement.

“Based on the support we’ve witnessed over the past five years, whereby principal and interest of the subordinated debt has continued to be paid, as well as statements of future support, we have raised the ratings on the subordinated debt of Fannie Mae and Freddie Mac,” credit analyst Matthew Albrecht said in the statement.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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