Standard & Poor's Ratings Services' believes that commercial paper (CP) guaranteed by the Federal Deposit Insurance Corp. (FDIC) would fit within our minimum guidelines for securities rated 'A-1+' or equivalent for its principal stability fund ratings (PSFRs) regardless of our credit rating on the issuer. This would include rated government and treasury money-market funds, as long as certain conditions are met. We do not anticipate any rating changes resulting from this criteria update.
We are refining and adapting our methodology and assumptions for funds ratings related to "Criteria: Principles of Corporate and Government Ratings," published June 26, 2007, on RatingsDirect. We are publishing this article to help market participants better understand our approach to reviewing PSFRs. This article updates and complements the methodology in "Principal Stability Fund Ratings Criteria," published Feb. 2, 2007, and "
The Impact of FDIC TLGP Securities On Rated Money-Market Funds," published Dec. 5, 2008, on RatingsDirect. All of the above-referenced items can be found on www.ratingsdirect.com and Standard & Poor's Web site at www.standardandpoors.com.
On April 6, 2009, we published an article titled "
The Ratings Approach To U.S. Financial Institutions' FDIC-Guaranteed Commercial Paper ." Here we stated that due to timing and settlement concerns, we will not assign an 'A-1+' short-term rating to CP programs based on the FDIC guarantee.
However, because we expect payment on the guaranteed CP to be made within the seven-day liquidity window for money-market funds, for PSFR purposes, we believe that regardless of our credit rating on the issuer, these investments fit within our minimum credit quality guidelines for an 'A-1+' or equivalent rating as long as the following conditions are met:
No more than 5% is invested with any one issuer; and
We have evidence or documentation from each guaranteed CP issuer held in the fund that CP is eligible and part of the FDIC guarantee program.
Recognizing the potential delay in receiving payment from the FDIC under its guaranty and to provide us with the most accurate liquidity snapshot of the fund, we will include an additional five days on the final maturity date of each FDIC-guaranteed CP holding to determine whether the rated fund is within the weighted average maturity guidelines for its respective rating category. This incremental maturity is based on our general criteria for timely payment of sovereign-guaranteed debt: It must be during the grace period or within five business days of the due date.
A Standard & Poor's PSFR, also known as a money-market fund rating, expresses our opinion regarding a fund's ability to maintain principal stability and to limit exposure to losses due to credit, market, and/or liquidity risks. A PSFR is not a guarantee or a comment on the fund's yield or performance. Fund management's decision to make payments in kind versus cash does not affect a PSFR; neither does a fund management's decision to suspend redemptions (i.e., not guaranteeing daily liquidity). Standard & Poor's Fund Ratings Group's opinions on FDIC TLGP securities speak to their consistency with our PSFR criteria and do not address whether such instruments meet applicable regulatory requirements.
Analytic services provided by Standard & Poor's Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.
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