WALL STREET – Fitch Ratings downgraded U.S. Central FCU again yesterday, amid growing losses on the books of the corporate credit union for corporate credit unions.
Fitch said it downgraded U.S. Central’s long-term Issuer Default Ratings a notch to AA and cut its Individual Rating from "A" all the way to "D," as a result of growing unrealized losses on the corporate’s books–now almost $10 billion.
"These losses threaten to impair USC’s already highly leveraged capital base and limit the company’s future capital generation capability," said Fitch. "Further, USC’s funding and liquidity positions, traditional strengths of the company, have eroded due to the illiquidity of significant portions of its investment portfolio and meeting the liquidity demands of its membership, its primary function for the credit union system."
Fitch did remove U.S. Central’s Issuer Default Rating from its Rating Watch Negative because of some of the industry support being introduced recently, specifically NCUA’s CU System Investment Program, which will provide billions of dollars in low-cost liquidity for U.S. Central and other corporates.
Fitch said it does view favorably U.S. Central’s recent conversion of $450 million in membership capital shares to a more permanent type of Tier One capital, known as Paid-In-Capital, or PIC II.
Fitch said while the huge amount of unrealized losses are due to the diminished market for U.S. Central’s securities, U.S. Central does hold securities for which the prospects of recovery are limited, specifically portions of its non-prime residential mortgage backed securities. "Thus," said Fitch, "there is heightened risk of USC recognizing significant ‘other-than-temporary impairment’ charges."
U.S. Central, which has also been downgraded in recent months by the other Wall Street agencies, Moody’s and Standard & Poors, acknowledged yesterday’s action, stating, "Such actions by rating agencies are no longer unusual events, especially within the financial services sector amid the current challenging credit market environment."
U.S. Central is among a handful of corporates that are holding large amounts of distressed investments, mostly asset-backed securities, that have received ratings downgrades in recent weeks. Last week S&P issued downgrades for seven corporates.
