UPDATE 2-S&P, Moody's slash Fannie, Freddie preferreds to junk
(Adds Moody's rating actions throughout)
NEW YORK, Sept 7 (Reuters) - Standard & Poor's, Moody's and Fitch Ratings on Sunday cut the ratings on preferred stock of troubled housing finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) to junk status after dividends were eliminated in a takeover by the U.S. government.
S&P boosted its outlook on their "BBB-plus" subordinated debt ratings to positive from negative amid signs that interest payments would not be affected. Moody's affirmed its "Aaa" senior long-term and Prime-1 short-term debt, and Aa2 subordinated debt ratings.
Fitch is reviewing its "AA-minus" rating on the subordinated debt.
The U.S. Treasury is taking an equity stake in the government-sponsored enterprises to shore up their financial stability, and placing them under conservatorship to manage their business of providing money to the U.S. housing market. [ID:nN07479172]
The preferred stock ratings dropped to "C" from "BBB-minus," according to the S&P statement. It was the second cut by S&P in less than two weeks.
Moody's lowered its its preferred stock ratings for both companies to "Ca" from "Baa3", citing the suspension of preferred stock dividends, as well as its view that dividends may be suspended for several years.
"Moody's believes that a liquidation of either firm remains unlikely, and thus the expected loss on the preferred stock is not total," it said.
Fitch also lowered the preferred stock rating to its "C/RR6" designation, from "BBB-minus."
"The downgrade of the preferred stock reflects the subordination of the preferred to any Treasury interest and interest payments are unlikely to resume in the foreseeable future," the Fitch analysts said in a statement. "Thus, any recovery is expected to be minimal."
S&P and Fitch also affirmed their "AAA" senior debt ratings of the GSEs, which sell billions of dollars in the securities to investors around the world. (Reporting by Al Yoon and Jan Dahinten; Editing by James Dalgleish and Lincoln Feast)
