Standard & Poor's Ratings Services yesterday attempted to correct some misperceptions about recent ratings comments regarding TLGP or FDIC-backed debt. In a publication entitled, "Treatment Of FDIC-Guaranteed Commercial Paper In Rated Money-Market Funds," S&P says it, "[B]elieves that commercial paper (CP) guaranteed by the Federal Deposit Insurance Corp. (FDIC) would fit within our minimum guidelines for securities rated 'A-1+' or equivalent for its principal stability fund ratings (PSFRs) regardless of our credit rating on the issuer." They say, "This would include rated government and treasury money-market funds, as long as certain conditions are met."
Yesterday's release says, "We are publishing this article to help market participants better understand our approach to reviewing PSFRs.... On April 6, 2009, we published an article titled "The Ratings Approach To U.S. Financial Institutions' FDIC-Guaranteed Commercial Paper." Here we stated that due to timing and settlement concerns, we will not assign an 'A-1+' short-term rating to CP programs based on the FDIC guarantee."
It continues, "However, because we expect payment on the guaranteed CP to be made within the seven-day liquidity window for money-market funds, for PSFR purposes, we believe that regardless of our credit rating on the issuer, these investments fit within our minimum credit quality guidelines for an 'A-1+' or equivalent rating as long as the following conditions are met: No more than 5% is invested with any one issuer; and, We have evidence or documentation from each guaranteed CP issuer held in the fund that CP is eligible and part of the FDIC guarantee program."
"Recognizing the potential delay in receiving payment from the FDIC under its guaranty and to provide us with the most accurate liquidity snapshot of the fund, we will include an additional five days on the final maturity date of each FDIC-guaranteed CP holding to determine whether the rated fund is within the weighted average maturity guidelines for its respective rating category. This incremental maturity is based on our general criteria for timely payment of sovereign-guaranteed debt: It must be during the grace period or within five business days of the due date," says the S&P report written by Primary Credit Analyst Peter Rizzo and Secondary Credit Analysts Joel Friedman and Mark Puccia.
In other news, see ICI Reports Money Market Mutual Fund Assets, which shows money fund assets increasing by $12.20 billion to $3.846 trillion in the week ended April 8, and see ICI's new "Money Market Fund Resource Center".
