IDD Daily Updates and Restructuring Alert Weekly Updates, our email alerts
Ratings Actions & Outlooks
October 3, 2008
S&P Revises CreditWatch Status Of AIG Ratings To Negative
Standard & Poor's revised the CreditWatch status of its ratings on American International Group and AIG's guaranteed subsidiaries to negative from developing. S&P also said ratings on most of AIG's insurance operating subsidiaries remain on CreditWatch with developing implications.
The 'A-/A-1' counterparty credit rating on AIG relies on the significant support from the $85 billion borrowing facility provided by the Federal Reserve Bank of New York. The facility provides liquidity, allowing the company and its subsidiaries to meet debt and other obligations while it implements its plan to sell various businesses. "The $61 billion draw to date on the facility is much larger than we had previously anticipated," according to Standard & Poor's. "This has caused the scope of the planned business sales to exceed our expectations."
The ratings on AIG and its guaranteed subsidiaries are on CreditWatch negative to indicate that there could be downward pressure because of S&P's view of the risks around the execution of the plan as well as the heavy debt-service requirements of a much smaller and less-diversified AIG.
The current disruption in the credit markets could make it difficult to sell businesses at attractive valuations. "Over the longer term, we expect that the effects of the disposition--coupled with broader market-support actions, including the proposed Troubled Asset Relief Program (TARP), changes in mark-to-market accounting rules, and AIG's efforts to stem residential mortgage-based securities-related losses--will improve the available funds under the Fed borrowing facility," the rating agency said.
The 'A+' financial strength ratings on most of AIG's insurance operating subsidiaries reflect S&P's view of the strong competitive positions, earnings, and capital of those companies, somewhat offset by investment risk in their portfolios. Those ratings are on CreditWatch developing to indicate that they could be raised or lowered, depending on whether or not AIG sells them and, if it does, who the buyer is. "We will analyze the capital structure and business prospects of each potential subsidiary sale and make rating changes as necessary when those sales materialize," the rating agency said.
S&P: Wells Fargo On CreditWatch Negative, Wachovia On Watch Developing
S&P placed all of its long-term ratings on Wells Fargo Corp. on CreditWatch negative, indicating that the ratings could be affirmed or lowered, following Wells Fargo's announcement that it plans to acquire Wachovia Corp.
At the same time, S&P said it revised the CreditWatch listing of Wachovia to CreditWatch Developing from CreditWatch Negative, indicating that the ratings could either be affirmed, raised, or lowered as a result of the acquisition.
Wells Fargo has announced that it would acquire Wachovia in a stock transaction valued at $7 a share. This will be an unassisted acquisition of all of Wachovia. Wells Fargo will raise up to $20 billion of equity. The boards of Wachovia Corp and Wells Fargo & Co. have approved this agreement.
"We believe this acquisition would greatly enhance the geographic span of Wells Fargo's banking franchise. Wells Fargo would emerge as the nation's largest core deposit banking institution," according to S&P. "The asset risk will be minimized by our expected $74 billion of purchase accounting adjustments or post-acquisition adjustments based on estimated lifetime losses and market-value adjustments on Wachovia's loans, other assets, and liabilities."
Wells Fargo is awaiting Wachovia's shareholders' approval and regulatory approval. At the same time, Citigroup has alleged that the Wells Fargo/Wachovia agreement violates an exclusivity agreement in their earlier announced proposal to acquire most of Wachovia.
"If this transaction with Wells Fargo closes, we could raise our ratings on Wachovia Corp. and its bank subsidiary, and equalize them to our ratings on Wells Fargo and its banking subsidiaries. Alternatively, if this transaction doesn't close, then we could lower our rating on Wachovia, reflecting our expectation for lower earnings and capital pressures driven by mortgage credit stress at Wachovia if it remains an independent entity," said Standard & Poor's.
The CreditWatch negative on Wells Fargo reflects the uncertainty surrounding core earnings and capital levels after this acquisition closes and the integration issues related to the size and scale of Wachovia relative to Wells Fargo. Also, this transaction comes in an operating environment characterized by consumer credit concerns, weak housing and mortgage markets, and increasing recessionary pressures in the U.S. economy.
For more information on related topics, visit the following:
