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Fitch acts on U.S. Central rating
NEW YORK (1/16/09)--Fitch Ratings announced Wednesday its latest action regarding U.S. Central FCU’s investments portfolio, saying that the portfolio “remains of very high quality” while its credit quality has migrated lower in the troubled U.S. economy. “USC’s’s investment book remains of very high quality with the majority of the securities being ‘AAA’ rated,” said Fitch in a press release. The actions reflect Fitch’s expectation that U.S. Central will continue to realize losses in its investment portfolio that are meaningful to capital and earnings capacity. Fitch also noted an erosion in funding and liquidity positions. “While Fitch recognizes that the large unrealized loss position overstates the true risk to USC, and the company has the intent and ability to hold its securities until recovery, USC’s investment book does contain securities for which Fitch believes recovery prospects are limited, specifically portions of its non-prime residential mortgage-backed securities (RMB). Thus there is heightened risk of USC recognizing significant ‘other –than-temporary impairment’ changes,” said Fitch. U.S. Central’s Issuer Default Rating (IDR) was moved to “AA” from “AA+” and Fitch removed the IDR rating from Rating Watch Negative. The Individual Rating is now “D” and is placed on Rating Watch Negative. The Rating Outlook for the long-term and short-term IDR is Stable, Fitch said. The Stable Outlook reflects “the extremely high probability of external support” from the credit union industry. Fitch recognized initiatives by National Credit Union Administration (NCUA) to inject liquidity into the system. Because of that support, U.S. Central continues to carry a high support rating of “1” and a high support floor of “AA,” said Fitch. Fitch also said it “does view favorably the company’s recent conversion of $450 million in membership capital shares to a more permanent form of capital, known as Paid-In-Capital (PIC II). “Further, the entire corporate credit union membership base participated in the PIC II issuance, which highlights the strength of USC’s franchise and its importance to its membership base. From a liquidity standpoint, while the company’s liquidity position has become more stressed, USC still has considerable unused contingent funding available,” said Fitch. It said NCUA’s liquidity/guaranty programs “will help relieve some of the liquidity and funding stress at USC and within the corporate credit union system.”
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