AUGUST 25, 2003
CREDIT WEEK FOCUS
No Change in Freddie Mac Ratings | S&P says the ratings are not affected by the departure of recently appointed CEO Greg Parseghian
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On Aug. 25, 2003, Standard & Poor's said that its ratings on Freddie Mac (FRE
; 'AAA/A-1+' senior unsecured debt) are not affected by the latest change in senior management that involves the departure of recently appointed CEO Greg Parseghian upon the hiring of his successor, and the departure of the General Counsel, Maud Mater. Freddie Mac's safety and soundness regulator, OFHEO, directed the change in management.
The 'AAA/A-1+' senior unsecured debt ratings of Freddie Mac reflect its status as a government-sponsored enterprise (GSE) and its direct and indirect links to the government. Congressional legislation creating Freddie Mac is a statement that it is there to serve a public purpose, which is to promote access to mortgage credit throughout the U.S. by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing. The direct financial support includes the Secretary of the Treasury's discretionary $2.25 billion authority to purchase Freddie Mac debt. The indirect support is reflected in the agency status of its securities, which includes their exemption from SEC registration and from U.S. state and local taxes.
These benefits, along with others listed in Freddie Mac's charter authorizing legislation, have allowed access to the worldwide private capital markets at favorable GSE pricing. Freddie Mac's 'AA-' risk-to-government, subordinated debt, and preferred stock ratings are based on an analysis that considers the company's financial profile and the operating benefits it receives as a GSE. These ratings will continue to be monitored while the company is in the midst of a reaudit for its financial statements covering 2000-2002.
While management's time and resources have been significantly diverted during the reaudit process, regulatory accounting filings with OFHEO indicate that Freddie Mac's key safety and soundness measures, including capital and asset quality, remain strong. Also, Freddie Mac's disclosure of interest rate risk measures and its exposure to changing interest rates indicate no significant change.
All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report.
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