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On Friday, August 5, 2011, Standard & Poor's downgraded the credit rating of the United States
from AAA to AA+. The following Monday they also downgraded the rating of federal agencies
that are fully backed by the credit of the federal government, including Fannie Mae, Freddie Mac,
Federal Farm Credit Bank, and Federal Home Loan Bank. The City's entire portfolio is invested
in or collateralized by securities issued by either these agencies or the federal government. It is
important to note that Moody's and Fitch affirmed the AAA rating of these issuers.
Surprisingly, this singular action will have little to no immediate effect on the City's portfolio. The
Public Funds Investment Act (PFIA ® Chapter 2256 of the Government Code) states, "An entity is
not required to liquidate investments that were authorized investments at the time of purchase."
In addition, the City's investment policy states that "prudent measures" should be taken in such
an event. The Investment Committee met that same week to discuss proper actions and
determined that, based on the current environment, the ratings from Moody's and Fitch, and the
possible alternatives, no existing investments should be liquidated. In addition, because of the
AAA ratings from the two rating agencies, these securities are still considered to be 'eligible
investments' according to both the City's investment policy and the PFIA.
Staff will continue to monitor the portfolio, issuers' ratings, and alternatives available to the Cit
Please direct any questions to James Mauldin, City Treasurer, at 817-392-2438. 1
Tom Higgins
Interim City Manager
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