But the offshore trend was negative

Philip Bayley

With the on again, off again, marriage of Volkswagen and Porsche being back on again, Fitch has left its 'BBB+' issuer default rating assigned to Volkswagen on Rating Watch Negative. With the final details of the future group structure and of the combined entity's expected financial profile still unclear, Fitch is unable to resolve the Rating Watch. Any downgrade should be limited to one notch.  
 
Following a vote by the US House of Representatives' Education and Labor Committee to pass a bill that would eliminate the origination of federal student loans by private lenders from July 2010, Standard & Poor's placed the 'BBB-/A-3' ratings assigned to SLM Corp., on CreditWatch with negative implications. While the bill must still be passed by the full House and Senate, and be signed off by the President in the face of significant industry pressure for modifications, S&P is concerned that SLM's lacklustre performance over the past few quarters will continue to be pressured by increasing provisions for the company's private education loans.

The deterioration in this portfolio highlights the higher-risk nature of these loans, which could become a much greater part of SLM's overall business model if the legislation is passed. There is the possibility of a one-notch or greater downgrade.

SLM Corp., has A$1.0 billion of bonds on issue in the domestic market. A one notch or more downgrade would take these bonds sub-investment grade.

Despite reporting an 81 per cent increase year on year in second quarter earnings, to a record US$3.2 billion, Fitch resolved its Rating Watch on Wells Fargo and Company and its subsidiaries and downgraded their issuer default and individual ratings one notch to 'AA-' and 'B', respectively. The ratings were assigned a stable outlook.

Fitch observed that Wells Fargo faces continued significant pressure on asset quality in light of the extremely weak economic environment. Moreover, the acquisition of Wachovia Corporation effectively doubled its size and added significantly to its risk profile, with approximately half of Wells Fargo's loan portfolio exposed to U.S. consumers, a borrower group that has been very negatively impacted by reduced home prices and high unemployment.

As CIT Group Inc. fights to stave off bankruptcy it announced an offer to buy back senior notes maturing next month at 80 per cent of face value. Fitch said it considers such an offer to be a coercive debt exchange and will downgrade its issuer default rating assigned to CIT to 'RD' from 'C' if the buyback is completed.

A rating of 'RD' indicates an issuer has experienced an uncured payment default on a material financial obligation but has not entered into bankruptcy, and has not otherwise ceased business. Despite announced recapitalization plans, Fitch believes bankruptcy is still a potential outcome.

S&P similarly announced that it will lower its ratings on CIT to 'SD' (selective default) upon completion of the buyback and lower the rating on the affected debt issue to 'D'. S&P is also of the view that the risk of bankruptcy remains significantly heightened.