Fitch Says Ratings Unaffected by Sandy
A release entitled, "Fitch: MMF Ratings Unaffected by Hurricane Sandy," says, "Fitch Ratings does not expect U.S. money market funds (MMF) to be materially adversely affected by Hurricane Sandy. Fitch-rated U.S. MMFs collectively manage approximately $460 billion in assets. Tax-exempt MMFs invest majority of their assets in short-term securities of municipal and tax-exempt issuers, including those located in the East Coast states affected by the storm. These issuers include local governments, educational and healthcare facilities, utilities and transportation systems. In the wake of Hurricane Sandy there have been unprecedented levels of damage to power, subways, commuter rail and telecommunications. However, economic impact of these events to tax-exempt MMFs is expected to be manageable due to limited direct exposure of MMF portfolios to this type of issuers. Fitch notes that the majority of assets in tax-exempt MMFs feature support from highly rated financial institution. However, approximately $1.0 billion of Fitch-rated tax-exempt MMF portfolios are invested in issuers in the storm affected areas that provide self-liquidity and are not backed by bank letters of credit (LOCs) or a stand-by purchase facility.... Fitch observed only minimal exposure to utility companies in the East Coast, such as New Jersey Natural Gas Company, which amounted to slightly over $20 million across all Fitch-rated MMFs. Furthermore, the great majority of short-term securities in tax-exempt MMF portfolios are issued in a form of variable rate demand notes (VRDNs) that are normally puttable within seven days. As of Sept. 30, 2012, Fitch-rated tax-exempt MMFs allocated 84.6% of their portfolios to such VRDNs.... Prime MMFs generally invest in high-quality short-term securities issued by U.S. government and its agencies, domestic and foreign financial and non-financial entities and repurchase agreements backed by such securities. Prime MMFs may also invest in securities issued by municipal and tax-exempt entities including VRDNs. As of Sept. 30, 2012, Fitch-rated prime MMFs, on average, had 3.8% of their portfolios invested in VRDNs. Fitch does not expect prime MMF ratings to be materially adversely affected by exposure to VRDNs issued municipal and tax-exempt entities due to mitigating factors as described above for tax-exempt MMFs.... Fitch noted a slight increase in demand on prime MMF liquidity in the last week of October, when prime MMFs experienced outflows of $28.1 billion, or close to 2% of the total prime assets, according to the Investment Company Institute. Fitch attributes these outflows to two factors: preemptive draws on MMF balances by institutional investors in the wake of the storm and month-end technical factors."
