Moody's Investors Service last week upgraded H.F. Ahmanson & Co.'s senior and subordinated debt and preferred stock, affecting $1.7 billion of securities.

The ratings agency also upgraded the senior and subordinated debt, long- and short-term deposits and commercial paper ratings of the company's main subsidiary, Home Savings of America.

Moody's cited the huge California thrift's improved asset quality, good capital reserves, as well as prospects for improved earnings.

The company also reduced its significant exposure to real estate investments and commercial real estate loans, and as a result enjoys improved reserve coverage, Moody's said.

"The inflow of nonperforming assets appears to have stabilized, and is now concentrated in the lower-risk single-family portfolio," Moody's said.

"Ahmanson's prospects are further enhanced by its large share of the market for adjustable-rate purchase mortgages in its primary markets, the favorable conditions for those products, and by its ability to maintain a relatively low cost of funds."

Not all is rosy, however. Ahmanson's recent acquisitions raise serious credit questions in the absence of adequate equity financing, Moody's said.

The acquisitions have improved the company's California franchise and have come with efforts to shed branches in such non-strategic states as Illinois, Moody's conceded.

However, in the process Ahmanson has "also added balance sheet risk and increased parent company double leverage as a result of debt and preferred stock financing," Moody's concluded.

Moody's upgraded H.F. Ahmanson's senior debt rating to Baal from Baa2; its subordinated debt to Baa2 from Baa3; and the preferred stock rating to Baa2 from Baa3.

Moody's upgraded Home Savings of America's long-term deposits, other senior obligations, and counterparty ratings to A2 from A3; short-term deposits and other senior obligations to Prime-1 from Prime-2; the senior debt rating to A2 from A3; the subordinated debt rating from Baal to A3; and the commercial paper rating to Prime-1 from Prime-2.

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