NEW YORK and PLANO, Texas (6/17/08)--In what is becoming a trend reflecting today's economic market, Fitch Ratings has reaffirmed the ratings of yet another corporate and added a Negative Watch component. Fitch maintained the ratings of Southwest Corporate FCU but placed them under a Negative Watch. The ratings are:
* Long-term Issuer Default Rating (IDR): AA-; * Short-term IDR: F1* * Short-term debt: F1+; * Individual A/B.
In its press release, Fitch said it "recognizes Southwest's ample liquidity, low reliance on borrowings, robust risk management practices and solid franchise. Southwest has the intention, and importantly, the ability to hold its investment securities until recovery or maturity." Fitch also noted that "Southwest's earnings performance compares well with other corporate credit unions." The ratings agency also said it placed the corporate's ratings on a Negative Watch primarily because it was concerned about an increasing possibility that the corporate could realize investment losses related to the deterioriating collateral performance of mortgage-backed securities. "I think that it is important to note that Fitch is citing a possibility but not a probability of losses," said John Cassidy, president/CEO of the Plano, Texas-based Southwest Corporate. "Southwest Corporate management is also very mindful of the possibility of experiencing losses related to our residential mortgage-backed security portfolio, but we remain confident that there is a low probability that we will realize meaningful investment losses," he said. The corporate's staff perform "rigorous investment credit analysis," including "multiple loss scenario projections on a bond by bond basis, supplemented by ongoing external validations performed by third-party experts," Cassidy added. "Fitch cited the level of our investment credit analysis when commenting on the close monitoring of mortgage collateral performance by our staff." Cassidy reiterated several points made in Southwest Corporate's 2007 Annual Report:
* As with any supply-and-demand market, the lack of trading activity in mortgage-backed securities caused the corporate's recorded asset fair values to decline; * Despite that decline, Southwest's investments are comprised of high quality assets; * The corporate expects the asset fair values to recover, over time, when more typical trading levels resume; and * The corporate's operating results have never been stronger and it has ample sources of liquidity to prevent the need to sell securities during the current market dislocation.