Rating agencies are assimilating the knock-on effects of the U.S. government’s bailout of Fannie Mae and Freddie Mac, concluding that the move isn’t currently expected to adversely affect other entities’ ratings.

Fitch Ratings said that the U.S. government faces increased fiscal risks following its planned bailout of the two government-sponsored enterprises, Fannie Mae and Freddie Mac. However, these risks aren’t enough to dent its sovereign rating.

The rating agency notes that the contingent risks to the U.S. government from potential losses at the two government sponsored enterprises (GSEs), “has risen as the health of Fannie Mae and Freddie Mac has deteriorated, prompting the Treasury to announce explicit financial support.” The scale of potential future losses at the two GSEs is uncertain, Fitch notes, but it says that the Treasury has committed to injecting up to US$200 billion if necessary, equivalent to 1.4% of GDP.

The U.S. fiscal deficit is already expected to widen sharply this year as a result of the economic slowdown and the fiscal stimulus package. Fitch expects general government debt to rise to 59.5% of GDP at end-2008 even before any capital injections to the two GSEs. Nevertheless, Fitch judges the U.S. government’s balance sheet strengths to be broadly on a par with those of other large ‘AAA’-rated sovereigns with relatively high public debt levels, such as France and Germany.

It says that its rating for the U.S. is supported by its large, high income, and flexible economy and the government’s unfettered access to market financing, both at home and abroad. “The dollar’s unthreatened status as a global reserve currency mitigates concerns about the rise in the economy’s net external debt in recent years associated with sustained current account deficits,” it says.

While the GSEs aren’t expected to damage the U.S.’s credit rating, they will also affect many other corners of the financial industry. For example, DBRS reports that they are referenced in many of the collateralized debt obligation transactions it rates. And, it says that market participants have agreed that the conservatorship announcement constitutes the occurrence of a ‘credit event’ for credit default swaps referencing Fannie Mae or Freddie Mac.

DBRS says that, based on current market pricing, the recovery rates for Fannie Mae and Freddie Mac will be high enough to mitigate the negative impact of these two credit events. “Under such a scenario, the credit events are not expected to materially impact the transactions,” it says. “However, if actual recovery rates are much lower than current market indications, negative rating action may result for a number of the transactions.” Such revisions may also impact the ratings of asset-backed commercial paper or other notes, it adds.