Fitch Ratings has released an updated "Global Money Market Fund Rating Criteria," which replaces its previous 'AAA/V1+' rating with a new 'AAAmmf' rating and which revises liquidity, maturity, diversification, and operational support guidelines for its highest-rated money market mutual funds. Fitch says, "The rating criteria outlined in this report replace all existing money market fund rating criteria and reflect in full the consultation process undertaken following the publication of Fitch Ratings Research on "Exposure Draft: Global Money Market Fund Rating Criteria," dated Jan. 26, 2009." (See our Jan. 28, 2009, article, "Rethinking Money Fund Ratings: Fitch Revamps Criteria for AAA"".)
The publication says, "Fitch's criteria release coincides with recent proposals to enhance the regulatory framework for money market funds put forth by the U.S. Securities and Exchange Commission (SEC), and certain industry trade associations. Fitch supports the objectives underpinning these proposals, which mirror Fitch's criteria in several important areas and should serve to further strengthen the industry. While the proposals provide a common baseline for money market funds in terms of credit quality and liquidity risk, Fitch focuses on several additional aspects when assigning its highest money market fund ratings."
The ratings agency cites the Criteria Highlights as: "The establishment of a new money market fund rating scale and ratings definitions, with an 'AAAmmf' rating that replaces the 'AAA/V1+' ratings. This is intended to provide improved transparency and better differentiate money market fund ratings from ratings on other rated debt instruments and higher-risk bond funds; Updated rating criteria with respect to shareholder redemption risk and portfolio level liquidity....; Revised liquidity guidelines afford credit to other highly liquid assets including U.S. Treasury securities and securities issued by other 'AAA' sovereigns and agency securities with maturities of 95 days or less; and, Adoption of a weighted average days to final maturity (WAMF) metric, which primarily measures spread risk and overall portfolio liquidity."
Other Highlights include: "Revised diversification criteria, which incorporate the issuer's rating and the exposure's time to maturity, as well as indirect exposures through other sponsored programs, such as ABCP conduits; A matrix-based approach to evaluating money market fund portfolios in the context of asset maturity and credit quality termed the Portfolio Credit Factor (PCF). The PCF is intended to more effectively differentiate funds that focus on high credit quality and shorter maturities from funds that exhibit higher levels of credit and/or market risk by investing in longer asset maturities and/or lower credit quality."
Finally, the report says, "In addition to an assessment of the fund sponsor's operational support, infrastructure capabilities, and investment oversight, consideration is given to the sponsor's ability and willingness to financially support its money market funds, if needed, in times of extreme stress. The concept of support is implicit rather than explicit, as Fitch recognizes there is no contractual obligation to support a fund. That said, historically, support has been forthcoming from strategically motivated sponsors that had sufficient financial resources."
