September 7, 2008 / 9:19 PM / 9 years ago

S&P, Fitch slash Fannie, Freddie preferreds to junk

NEW YORK (Reuters) - Standard & Poor’s and Fitch Ratings on Sunday cut the ratings on preferred stock of troubled housing finance companies Fannie Mae and Freddie Mac 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 interest payments would not be affected. Fitch is reviewing its “AA-minus” rating on the subordinated debt.

The 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.

The headquarters of mortgage lender Fannie Mae is shown in Washington in this file photo from October 3, 2006. REUTERS/Jason Reed/Files

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.

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; Editing by James Dalgleish

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