A press release issued late Tuesday says, "Fitch Ratings has revised its ratings on money market funds globally following the implementation of its new global money market funds rating criteria and rating scale." (See Crane Data's Oct. 6, 2009, previous News on the new criteria, "Fitch Replaces AAA/VR1+ with AAAmmf in Revised MMF Rating Criteria".) The release explains, "Collectively, the 69 U.S. and European money market funds included in the review held more than US$1 trillion of assets under management as of December 2009."
Fitch says, "In all cases, money market funds that were previously rated 'AAA/V1+' and one 'AAA/V1' rated fund, have had their ratings revised to 'AAAmmf'. This represents Fitch's highest rating under its new rating criteria and scale for money market funds. The 'AAAmmf' ratings reflect the funds' conservative investment profiles, which are in line with Fitch's revised rating criteria, and take into consideration the proactive steps taken by fund managers to reduce their funds' risk profiles during a period of heightened market uncertainty."
They continue, "Fitch defines a 'AAAmmf' money market fund rating as having an 'extremely strong capacity to achieve its investment objective of preserving principal and providing shareholder liquidity through limiting credit, market, and liquidity risk.' The new criteria revised important elements of how Fitch assesses credit, market and liquidity risk and introduced a stand-alone ratings scale for money market funds to differentiate their ratings from other ratings assigned under Fitch's traditional rating scale. Reflecting on the stresses the industry faced during late 2008, the updated criteria seek to strengthen the safety and stability of rated money market funds and coincide with recent regulatory and industry proposals."
The ratings agency explains, "Among the key changes are new measures of portfolio liquidity to address shareholder redemption risk in times of stress and the introduction of a Portfolio Credit Factor (PCF) matrix that measures credit risk on two dimensions -- credit quality and maturity. Fitch has also introduced enhanced diversification criteria for direct, indirect (i.e. asset-backed commercial paper sponsors, variable rate demand obligation liquidity providers) and repurchase agreement counterparty exposures and guidelines to limit risk from yield-enhancing leverage strategies such as reverse repurchase agreements and securities lending. In addition, the criteria contain a new 'spread risk' metric (weighted average final maturity or WAMf) to complement the existing interest-rate sensitivity metric (weighted average maturity to reset date or WAMr) and more in-depth consideration of the sponsor's multi-faceted role, including operational set-up and financial standing."
Finally, Fitch says, "In instances where there is an absence of large operations or of a financially-sound sponsor, Fitch acknowledges that sufficiently conservative investment management practices with respect to the portfolio credit quality, market risk and liquidity may be considered as satisfactory mitigants for funds to be assigned a 'AAAmmf' rating." For a full listing of AAA-rated money market mutual funds, see Crane Data' Money Fund Intelligence XLS.
