S&P Says Government Might Wipe Out Some Fannie, Freddie Debt Holders

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Will the government's bailout of Fannie Mae and Freddie Mac wipe out holders of their preferred stock and subordinated debt? That's what S&P warned today with its statement that it was placing these instruments on a negative credit watch pending a review of the legislation on Capitol Hill.
"Although there is still ambiguity on the part of regulatory authority as it applies to how nonsenior creditors of Fannie Mae and Freddie Mac would be treated if the U.S. Treasury ever acted on its three-point liquidity plan, the language in HR 3221 increases the likelihood that subordinated debtholders and preferred stockholders would face greater subordination risk," S&P's analyst wrote.
S&P affirmed the mortgage giants' triple-A senior unsecured debt ratings because the government is dead set against letting that stuff fail. The proposals to authorize the Treasury Department to rescue the two companies could land on the President's desk as early as this weekend.

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