MADISON, Wis. (4/16/09)--Moody’s Investors Service adjusted the short-term ratings of four corporate credit unions Tuesday to Prime-3 from Prime-1. The rating actions affected:
* Members United Corporate FCU, Warrenville, Ill.; * Central Corporate CU, Southfield, Mich.; * Corporate Central CU, Muskego, Wis.; and * SunCorp Corporate CU, Westminster, Colo.
The rating actions reflect Moody’s view that the corporates’ baseline credit assessments, a measure of their stand-alone credit profiles, have weakened. In particular, the eventual impairment of the corporates’ capital investments--member capital shares and paid-in capital--in U.S. Central FCU, and potential losses in their securities portfolios, will lead to capital ratios that are weak and would be inconsistent with an investment grade rating on a stand-alone basis, Moody’s said in a press release. However, Moody's views the probability of external support from both the U.S. government and the credit union network for the corporate credit unions to be high, resulting in significant lift to their short-term ratings, which are Prime-3. The short-term ratings also consider the senior position of debt obligations relative to member shares, which provides substantial added protection for third-party creditors. The Prime-3 ratings and developing outlooks reflect the uncertainty of potential regulatory and/or structural changes to the Corporate Credit Union Network, and the risk that such changes may diminish the relevance of these firms upon the restoration of normal market and economic conditions. In January, the National Credit Union Administration (NCUA) issued an “Advance Notice of Proposed Rulemaking” (ANPR) and request for comment. Under the ANPR, the NCUA sought public comment as to the appropriate business functions, geographic reach, capitalization, permissible investments, risk management and corporate governance of corporates. The NCUA also is considering whether there should continue to be a two-tiered corporate network, which has U.S. Central as the only wholesale credit union in the U.S. Tuesday’s rating actions are consistent with Moody’s recent announcement that it is recalibrating some of the weights and relative importance attached to certain rating factors within its current bank rating methodologies. Capital adequacy, in particular, takes on increasing importance in determining stand-alone ratings in the current environment, Moody’s said.