WALL STREET — Standard & Poors said last week it lowered its ratings on six corporate credit unions in light of the trickle-down effect of the failure of U.S. Central FCU, which forced all corporates to charge-off their capital in U.S. Central.
"This action was prompted by our reassessment of these institutions' creditworthiness in light of recent regulatory actions taken by NCUA and the corporate credit unions' capitalization being severely impaired as the result of the expected write-down of their capital investments in U.S. Central," S&P said in a release.
"Although NCUA has stated that it does not plan to seize any corporates because of the write-down of their investments in U.S. Central, we believe that this will severely impair the corporates' capitalization," said S&P.
"The impact of this write-down on the rated corporate credit unions' capitalization varies widely, but in all cases it results in a capital profile that we believe is insufficient to support any rated corporate at the prior ratings level. The NCUA has stated that it would inject capital into any corporate that needed it as the result of securities write-downs. It remains to be seen if this would be done under conservatorship, as it was at U.S. Central and WesCorp FCU, or in a way less favorable to creditors," wrote the Wall Street agency.
The corporates downgraded yesterday are: Southwest Corporate FCU, Southeast Corporate FCU, Constitution Corporate FCU, SunCorp FCU, EasCorp FCU and CenCorp CU.
S&P said it is also withdrawing its ratings for EasCorp and CenCorp at the request of the two corporates, which it said show the biggest effect from the elimination of their U.S. Central capital.
"Before these recent events," said S&P, "EasCorp and CenCorp were among the highest- rated corporates because they had the least exposure to at-risk, mortgage-related, structured securities, but we expect their capital levels to be the most severely affected by the write-down of their U.S. Central capital investments. According to our calculations, each is likely to have negative regulatory core capital. Although we expect the capital levels at Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union to be least affected by the write-down, we believe their resulting capitalization will be weak in light of their significant exposure to potential future losses on their portfolios of mortgage-related structured securities."
