S&P upgrades debt ratings of Freddie Mac, Fannie Mae

Global credit rating agency Standard & Poor's today said it has raised subordinated debt ratings of Fannie Mae and Freddie Mac, the two troubled mortgage companies, which were bailed out by the government in September.

The agency has assigned a higher level of investment grade rating 'A' (bonds with many positive investment qualities) each to the two government-sponsored mortgage enterprises and removed the rating from credit watch positive from the two mortgage companies.

"The rating action reflects our view of both the explicit government support these securities enjoy, while Freddie Mac operates under conservatorship and its weakened financial profile," S&P said in a statement.

Freddie Mac's primary regulator, the Federal Housing Finance Agency (FHFA), has stated that Freddie Mac would continue to make interest and principal payments on its subordinated debt, even if it fails to maintain required capital levels.

"This support for the subordinated debt is now factored in the rating, and has stabilised the subordinated debt rating," the release said. The government support provides stability to the rating in what is believed to be highly uncertain times for Freddie Mac.

Meanwhile, Fannie Mae's primary regulator, FHFA, in its capacity as conservator, has effectively suspended interest- deferral provision of Fannie Mae's subordinated debt, which would permit the timely payment of principal and interest on its subordinated debt, while the company operates under conservatorship.

"This explicit support provided for the subordinated debt is now factored in the rating and has stabilised the subordinated debt rating," the release added.