Fitch Ratings has affirmed Mid-Atlantic Corporate Federal Credit Union's (Mid-Atlantic) long-term Issuer Default Rating (IDR) at 'A+' and short-term IDR at 'F1+'. In addition, Fitch has affirmed Mid-Atlantic's Viability rating (VR) at 'bb'-. The Rating Outlook remains Stable. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS - IDRs
The affirmation of Mid-Atlantic's IDRs and Stable Outlook reflects Fitch's view that the company will continue to benefit from the government support provided to Corporate Credit Unions (CCUs) through the National Credit Union Association (NCUA). Fitch attributes an extremely high probability of support to CCUs from regulatory authorities, as reflected in its high Support rating and Support rating floor. This view is underpinned by the NCUA's past actions and the U.S. Treasury's additional assistance to credit unions by extending the operation of the Temporary Corporate Credit Union Stabilization Fund through 2021.
The affirmation of Mid-Atlantic's 'F1+' short-term IDR denotes the company's exceptionally high capacity for timely payment of short-term financial commitments given Fitch's view that government support would backstop any liquidity needs. Under Fitch's rating criteria, when a company's long-term IDR maps to more than one short-term rating, the higher short-term rating may be assigned. In this case, Mid-Atlantic's short-term IDR is 'F1+', reflecting government support. Mid-Atlantic's IDR is currently at its Support Rating floor.
KEY RATING DRIVERS - VRs
Mid-Atlantic's VR affirmation primarily reflects the company's sufficient levels of capital and liquidity, adequate sources of contingent funding, and conservatively managed investment portfolio relative to the rating. Mid-Atlantic's capital levels continued to improve since last review, exceeding 'well capitalized' standards set by the NCUA.
The company's VR is constrained by certain risk concentrations and operational limitations inherent to the CCU industry. Mid-Atlantic is highly dependent on its investment securities portfolio for earnings and liquidity; the securities value is sensitive to changes in interest rates and credit spreads. CCUs generally operate with higher levels of leverage than higher rated financial institutions. They are also highly interconnected with credit unions and rely on short-term funding and excess liquidity within the industry.
RATING SENSITIVITIES - IDRs
As previously noted, Mid-Atlantic's IDR is currently at its Support Rating Floor. As such, Mid-Atlantic's IDR is sensitive to Fitch's view of the expected level of support the CCU would receive during a period of distress. Fitch's view toward support for the CCUs was substantiated by the NCUA's past actions to the entire CCU system and the U.S. Treasury's continued support. That said, as the CCU system continues to recover and systemic issues are addressed, Fitch could re-evaluate its view toward support. Should Fitch's view toward the probability of support lessen without a fundamental improvement in the financial condition of Mid-Atlantic, the current IDR would likely be downgraded.
RATING SENSITIVITIES - VRs
Upward rating potential is limited given rating constraints inherent with the CCU industry. As a service and liquidity provider to credit unions, Mid-Atlantic's VR is vulnerable to the credit union industry and any deterioration in liquidity of member institutions. Additionally, a material devaluation of Mid-Atlantic's securities may adversely affect capital levels and liquidity, which would result in a review of the credit. However, if Mid-Atlantic continues to improve its capital levels and funding profile while maintaining a conservative investment strategy, then positive rating action could occur.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT FLOOR RATING
Mid-Atlantic's Support Rating of '1' reflects Fitch's view that the likelihood the company would receive extraordinary support is extremely likely should such support be needed. Mid-Atlantic's Support Rating Floor of 'A+' reflects Fitch's view that there is an extremely high probability of support to CCUs and Mid-Atlantic from regulatory authorities. As discussed, his view is underpinned by the NCUA's past actions and the U.S. Treasury's additional assistance to credit unions by extending the operation of the Temporary Corporate Credit Union Stabilization Fund through 2021.
KEY RATING SENSITIVITIES- SUPPORT RATING AND SUPPORT FLOOR RATING
Mid-Atlantic's Support Rating is highly sensitive to Fitch's assumption around the ability and willingness of the NCUA or the U.S. government to offer extraordinary support in case of need. Thus any changes to the U.S. Treasury's Corporate Credit Union Stabilization Fund or expiration in 2021 would prompt a review of the ratings, which could result in a multiple-notch downgrade.
Fitch affirms the following ratings:
Mid-Atlantic Corporate Federal Credit Union
--Long-term IDR at 'A+'; Outlook Stable
--Short-term IDR at 'F1+';
--Viability Rating at 'bb-';
--Support Rating at '1';
--Support Rating Floor at 'A+'.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (January 2014).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978832
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