TEXT-S&P: SF Ratings Remain On CreditWatch Neg After U.S. Downgrade

Mon Aug 8, 2011 9:38pm EDT

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(The following was released by the rating agency)

OVERVIEW

-- Since July 15, 2011, we have placed our ratings on 744 structured finance transactions on CreditWatch negative due to exposure to the sovereign credit risk of the U.S.

-- We lowered our long-term credit rating on the U.S. to AA+/negative outlook and removed it from CreditWatch negative on Aug. 5. We affirmed the short-term rating on the U.S. at 'A-1+' and removed it from CreditWatch negative. The transfer and convertibility assessment of the U.S. remains at 'AAA'.

-- We will review each structured finance transaction with ratings placed on CreditWatch negative, as well as any additional transactions we expect may be affected, and take rating actions as we deem appropriate. Pending completion of our review, we expect that our ratings on some of these transactions will remain on CreditWatch negative.

NEW YORK (Standard & Poor's) Aug. 8, 2011--Standard & Poor's Ratings Services today stated that its ratings on 744 structured finance transactions (the affected transactions) remain on CreditWatch negative following the lowering of the long-term credit rating on the United States of America to 'AA+' with a negative outlook from 'AAA' and the removal of the long-term and short-term ratings from CreditWatch negative. The rating actions also included the affirmation of the 'A-1+' short-term rating on the United States of America. The transfer and convertibility assessment of the U.S remains at 'AAA' (see "United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative," published Aug. 5, 2011).

We previously placed the ratings assigned to the securities from 744 structured finance transactions on CreditWatch negative due to potential exposure to the sovereign credit rating of the U.S. Following the sovereign downgrade, we will review the affected transactions, as well as any additional transactions we expect may be affected, and take rating actions we view as appropriate. For the complete list of] affected structured finance transactions, please see "Structured Finance Ratings On CreditWatch Negative Following U.S. Sovereign Downgrade," available on the Global Credit Portal, at www.globalcreditportal.com, and on www.standardandpoors.com.

We expect to lower the ratings on most of the affected transactions to a level no higher than the sovereign rating on the U.S. A general overview of the expected impact of the sovereign rating action is presented below:

-- Principal protected notes: We expect to lower the ratings on principal protected notes backed by U.S. government obligations (e.g., a Treasury strip) to a level equal to the sovereign rating.

-- Defeased securities: We expect to lower the ratings on most defeased securities linked to the U.S. sovereign rating to a level equal to the sovereign rating. The affected transactions are mainly tobacco securitizations and letter of credit-backed issues. We would reassign outlooks as appropriate on certain tobacco securitization transactions for which we had previously assigned outlooks (see "79 Ratings On 15 Defeased Tobacco Securitizations Affirmed, Outlooks Revised To Negative On USA Sovereign Outlook Change," published April 21, 2011).

-- Transactions with defeased loan collateral: Certain transactions, including commercial mortgage-backed securities (CMBS) transactions that have defeased loan collateral, will be evaluated based on each rated security's degree of reliance on U.S. government obligations and the availability of other sources of credit support.

-- Linked ratings: We expect to lower the ratings on transactions with ratings directly or in part linked to the sovereign rating of the U.S., such as structured finance securities guaranteed or securities collateralized by loans guaranteed by the U.S., a government-related entity or a government agency (e.g., FFELP, NCUA, Fannie Mae, Freddie Mac, SBA, etc.), to a level equal to the sovereign rating (see "Ratings On Select GREs And FDIC- And NCUA-Guaranteed Debt Lowered After Sovereign Downgrade," published Aug. 8, 2011). However, there may be transactions that have other sources of credit support sufficient to maintain the current ratings.

-- Eligible investments: We are not taking rating actions on any transactions with eligible investments that have exposure to U.S. government obligations.

-- Ratings linked to financial institutions: If the sovereign rating action leads to subsequent rating actions on financial institutions, we expect certain structured finance transactions with ratings linked to those financial institutions may be affected.

-- New issuance: Under our criteria, if warranted, we can continue to rate new structured finance transactions higher than the sovereign rating.

We expect to complete our review of a significant portion of the affected transactions within the next few days. Please note that the number of transactions cited in our July 15, 2011, press release overstated the number of affected referenced and repackaged securities (RRS) transactions by five. The correct number of affected transactions with ratings placed on CreditWatch on July 15, 2011, is 599, as reflected in the list published in conjunction with that article. Our ratings on some affected transactions may also be on CreditWatch due to factors not related to the sovereign credit risk and may remain on CreditWatch after we resolve the sovereign-related CreditWatch placements. We will resolve these CreditWatch placements after we review the specific nonsovereign-related factors. We expect to issue rating action press releases for the affected transactions in each asset class as we complete our review.

RELATED CRITERIA AND RESEARCH

-- United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative, published Aug. 5, 2011.

-- 604 Structured Finance Ratings Put On CreditWatch Negative Following U.S. Sovereign CreditWatch Placement, published July 15, 2011.

-- Ratings On An 136 Additional Structured Finance Transactions Put On Watch Neg After U.S. Sovereign Watch Placement, published July 21, 2011.

-- Ratings On An Additional 20 U.S. RMBS Classes Put On Watch Neg After U.S. Sovereign Watch Placement, published July 29, 2011.

-- What If Analysis: The Potential Impact To Structured Finance Securities Of The U.S. Debt Ceiling Standoff, published July 21, 2011.

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, published June 14, 2011.

-- Weighing Country Risk In Our Criteria For Asset-Backed Securities, published April 11, 2006.

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