Partial-Sale Prospects Spur WaMu Downgrades

The possibility of a partial sale of Washington Mutual Inc. has prompted downgrades of WaMu by Standard & Poor's Ratings Services and Fitch Ratings. S&P downgraded WaMu's counterparty credit rating from BB-minus/B to CCC/C, though it affirmed the BBB/A-3 counterparty credit rating on Washington Mutual Bank, citing "the breadth of its retail franchise." S&P attributed the downgrade to "the increased likelihood that a potential sale of the company may not involve the whole company, which increases the risk of default for holding company creditors." Fitch downgraded WaMu's long-term Issuer Default Rating from BBB-minus to B-minus and placed the company and its subsidiaries on Rating Watch Evolving, citing "the heightened uncertainty associated with WaMu's debt obligations in light of the difficult market conditions and increasingly limited options to bolster capital." A partial sale "would likely be detrimental to WaMu's holding company creditors and potentially to unsecured debtholders at the bank level because they are effectively subordinated to depositors and the considerable amount of secured financing," Fitch said.