| Franklin D Raines | ||||||
Freddie Mac and Fannie Mae, America’s two largest agency debt issuers, have now implemented the latest steps in their voluntary six-point programme agreed with Congress last year to reassure clients and the public of their safety and soundness.
The programme, announced in October 2000 at the urging of Representative Richard Baker, chairman of the House of Representatives’ agencies oversight subcommittee, comprised commitments to maintain more than three months’ liquidity, to implement a risk-based capital stress test, to disclose publicly the results of credit and interest rate risk-sensitivity analyses, to issue subordinated debt and to obtain an annual risk to the government rating from a recognized rating agency.
Both Freddie Mac and Fannie Mae have received AA- ratings from Standard&Poor’s and have gone beyond the terms of the agreement, which called for an annual rating, in requesting that the ratings should be continuously monitored. Ed Golding, senior vice-president for financial research at Freddie Mac, expresses satisfaction. “This is a very strong rating so we are very pleased,” he says. “The ratings have an important role to play in reassuring the public of the strength of our position and the fact that these are continuous surveillance ratings helps as it means that, should the environment change, our rating will be changed accordingly.”
Franklin D Raines, chairman and chief executive officer of Fannie Mae, is also happy with its rating. “This rating shows that our activities represent very little risk to the government and demonstrates our inherent financial strength,” he says. The risk to the government rating is a hypothetical rating, referring to no particular product issued by the agencies, rather assessing the financial health of a government-sponsored enterprise (GSE) assuming no aid from government.
Effectively, it rates the likelihood of a GSE being able to cover the entirety of its commitments from its own resources.
The agencies have also both completed their initial issues of subordinated debt, as per the voluntary commitments. Fannie Mae’s subordinated debt has achieved a rating of Aa2 from Moody’s Investors Service and AA- from S&P. Freddie Mac’s issue has been rated similarly. Freddie Macs first issue of $2 billion subordinated debt was priced on March 21. Golding remarks: “The subordinated debt issue has gone very well. It was well received and is certainly doing the job that we thought it would.”
