Standard & Poor's Ratings Services issued a press release yesterday saying the company "has updated its principal stability fund ratings (PSFRs) criteria and methodology, including expanded net asset value (NAV) deviation ranges for each rating category." The company does not expect any immediate ratings changes as a result of the criteria update.
The company published "Standard & Poor's Comments On Its Principal Stability Fund Ratings Methodology," which details how the NRSRO will now "incorporate current market stresses that may affect a fund's ability to maintain its principal value, as well as fund management response and measures of sponsor support, into fund analysis." S&P "also provides clarification on the analysis of certain issues, such as declining NAVs and the bifurcation of assets in rated funds during these unusual market times, as well as how we communicate and address those that fall outside our analytical framework."
The release continues, "To increase ratings transparency and market knowledge about PSFRs further, we also released updated documentation of the definitions of each category of our PSFRs. This document is designed to explain clearly what a PSFR is and its function. Supplementing this is documentation that outlines the qualities and characteristics of PSFRs for both money-market funds and government and/or treasury funds, as well as our fund credit and volatility ratings."
The new "Expanded NAV Deviation Ranges For Each PSFR Category" is causing a stir among some funds, however. S&P says, "Our current PSFR criteria only address when the marked-to-market NAV of a 'AAAm' rated fund drops below 0.9985." They "adding the following marked-to-market NAV (per share) range" for 'AAAm' funds: 0.9975 to 1.0025. "If the NAV for a fund in one of these categories exceeds these ranges, we would typically take rating action," says the ratings agency. Some managers are concerned that this measure is 'draconian' and will force a fund to be watchlisted.
Finally, S&P summarizes their 'AAAm' PSFRs: - Maximum weighted average maturity (WAM) of 60 days or less; - Minimum of 50% in 'A-1+' securities, and maximum of 50% in 'A-1' securities; and - Maximum final maturity of floating-rate securities is two years. The company "also evaluate management's response to events that may result in one or more of these measures weakening and whether those events impair the fund's ability to maintain its principal value."
