NEW YORK--()--Fitch Ratings rates 'AAA' the following senior secured notes issued by ClearBridge Energy MLP Opportunity Fund Inc. (NYSE: EMO), a non-diversified, closed-end fund advised by Legg Mason Partners Fund Advisor, LLC (LMPFA) and subadvised by ClearBridge Advisors, LLC (ClearBridge):
--$40,000,000 3.27% Series A Senior Secured Notes due 2020;
--$50,000,000 3.87% Series B Senior Secured Notes due 2023;
--$60,000,000 4.02% Series C Senior Secured Notes due 2025.
KEY RATING DRIVERS
--Sufficient asset coverage relative to Fitch's published criteria;
--The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;
--The equal (pari passu) treatment in point of priority and security with the secured financing facilities of the fund;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of LMPFA and ClearBridge as investment advisor and subadvisor. As of Jan. 31, 2013, the fund's total assets were approximately $853 million.
DETAILS OF THE TRANSACTION
The closing date for the senior notes was Feb. 7, 2013. The fund intends to use the net proceeds from this offering to repay outstanding borrowings on a floating rate line of credit, make new portfolio investments, and for general corporate purposes.
After the deal closing, the fund's total leverage was $190 million, not including accrued interest, or approximately 22% of the total assets. The leverage comprised $150 million of senior secured notes and $40 million of outstanding bank borrowing.
At the time of the issuance, the fund's asset coverage ratio for the newly issued senior secured notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), exceeded 300%, which is the minimum asset coverage required by the 1940 Act for such securities. Also, at the time of issuance, the fund's asset coverage ratios with respect to the same securities, as calculated in accordance with Fitch's 'AAA' overcollateralization (OC) test, exceeded of 100%, which is the minimum asset coverage levels deemed consistent with the rating assigned to the newly issued notes.
Should the asset coverage tests for the senior secured notes decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the governing documents require the funds to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests.
The fund commenced its operations on June 10, 2011. The fund's objective is to provide a high level of total return with an emphasis on cash distributions. The fund seeks to achieve its objective by investing primarily in master limited partnerships (MLPs) in the energy sector, which are entities that derive at least 50% of their revenues from the business of exploring, developing, producing, gathering, transporting, processing, storing, refining, distributing, mining or marketing natural gas, natural gas liquids, crude oil, refined petroleum products or coal.
As of Nov. 30, 2012, the fund incurred a differed tax liability in the amount of $53.8 million. Under a stressed market scenario, the fund may have to liquidate portfolio assets to restore its asset coverage ratios. If such a scenario occurred, any currently existing unrealized gain would likely be eliminated or significantly reduced as a result of asset price declines causing such liquidation. Nonetheless, Fitch rating criteria expects the fund to account 10% of the deferred tax liability as current liability for the purpose of calculation OC coverage for the senior secured notes.
THE ADVISOR AND SUBADVISOR
LMPFA and ClearBridge are wholly owned subsidiaries of Legg Mason, Inc., a global asset management firm with $649 billion in assets under management as of Dec. 31, 2012. ClearBridge is Legg Mason, Inc.'s largest equity manager with approximately $57.2 billion in assets under management, including $3 billion in energy MLPs, as of Dec. 31, 2012. It provides clients with a diverse line of equity-focused strategies in various investment options.
The ratings may be sensitive to material changes in the credit quality or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch. Given the fund's investment focus on MLPs in the energy sector, the fund rating could be sensitive to adverse factors affecting the MLP business and economics of the sector.
For additional information about Fitch closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.
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.
Additional information is available at www.fitchratings.com.
The sources of information used to assess these ratings were the public domain, LMPFA, and ClearBridge.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012);
--'2013 Outlook: Closed-End Funds' (Dec. 14, 2012).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
2013 Outlook: Closed-End Funds