Fitch Affirms Federal Home Loan Bank of Atlanta's 'AAA' Rating; Outlook Remains Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' long-term Issuer Default Rating (IDR) and Support Floors of Federal Home Loan Bank of Atlanta (FHLBATL). In addition, Fitch has affirmed FHLBATL's Viability Rating (VR) at 'bbb+'. The Rating Outlook remains Negative. A complete list of ratings follows at the end of this release.

With $119 billion of assets at June 30, 2012 FHLBATL is one of the 12 banks making up the FHLBank System. As a government sponsored entity (GSE), the IDRs of FHLBATL are linked to the U.S. Sovereign rating. This is articulated in Fitch's report 'Rating Linkages to the U.S. Sovereign Rating' dated July 18, 2011. FHLBATL has historically benefited from its affiliation with the U.S. government, and its current IDRs and Outlook benefit from the implicit support that it receives.

Fitch believes that implicit sovereign support for the FHLBank System would be forthcoming due to its important mission as it pertains to homeownership, serving as a source of liquidity to its members and the wide global distribution of FHLBanks debt. As evidenced in the significant increase in consolidated obligations and advances during 2007 and 2008, the FHLB System provided much needed liquidity to its banking members, made possible by its access to the capital markets by virtue of its GSE status. Outstanding advances have since come down significantly and were $81.8 billion at June 30, 2012, down $61 billion or 43% from Dec. 31, 2007. FHLBATL's Support and Support Floor ratings reflect Fitch's view that sovereign support would extend to FHLBATL and its consolidated obligations. Consequently, FHLBATL's long-term IDR is reflective of implicit sovereign support.

The VR communicates Fitch's view of the stand-alone risk that FHLBATL poses to the FHLBATL System and does not reflect the benefit FHLBATL may receive directly through sovereign support. Fitch's VR on FHLBATL reflects the fact that it has never had a credit loss, consistently recovering its entire exposure to failed members, including prepayment penalties where applicable. This is despite stress in the banking sector, and specifically banking stress within its region leading to over 100 member banks being placed into receivership by the Federal Deposit Insurance Corporation since 2007.

Investments in private label MBS (totaling $6 billion or 5% of total assets at June 30, 2012) had placed pressure on operating performance in 2008 through 2011. However, charges related to this portfolio have largely subsided resulting in positive quarterly ROA trends more recently. Fitch notes that average OTTI charges as a percentage of the investments portfolio have been 74bps for the last four years. FHLBATL has $19 billion of outstanding letters of credit, which is approximately 16% of total assets and relatively high to other FHLBs who fall in the 1 - 8% range.

Fitch also notes FHLBATL capital position is weaker relative to other FHLB with regulatory capital at 5.41% at June 30, 2012 (FHFA requires the FHLBs to maintain at least 4%), and trending downward largely due to capital redemptions of excess capital by member banks. FHLBATL appears to be further along relative to other FHLBs in redeeming its excess stock. A change in the positive earnings trend or unexpected pressure to capital could result in a negative rating action on the VR by Fitch.

Fitch anticipates resolution of the Negative Outlook on FHLBATL will coincide with Fitch's resolution of the Negative Outlook on the U.S. Sovereign rating. At the present time, Fitch anticipates FHLBATL's IDR will remain equalized with the U.S. Sovereign rating.

Fitch affirms the following ratings:

Federal Home Loan Bank of Atlanta

--Long-term (IDR) at 'AAA';

--Short-term IDR at 'F1+';

--Viability Rating at 'bbb+'

--Support at '1';

--Support Rating Floor at 'AAA'.

The Rating Outlook is Negative

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Rating Linkages to the U.S. Sovereign Rating' (July 18, 2011)

--'Ratings Criteria for Banking Structures Backed by Mutual Support Mechanisms' (April 11, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Rating Linkages to the U.S. Sovereign Rating

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646469

Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=666999

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.