NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' ratings assigned to the senior secured notes (Notes) and 'AA' ratings assigned to the mandatory redeemable preferred shares (MRPS) issued by the following closed-end funds managed by Legg Mason Partners Fund Advisor, LLC (LMPFA) and subadvised by Clearbridge Investments, LLC (Clearbridge):
--ClearBridge American Energy MLP Fund Inc. (NYSE: CBA);
--ClearBridge Energy MLP Fund Inc. (NYSE: CEM);
--ClearBridge Energy MLP Total Return Fund Inc. (NYSE: CTR);
--ClearBridge Energy MLP Opportunity Fund Inc. (NYSE: EMO);
A complete list of the funds and the associated ratings is included at the end of this press release.
KEY RATING DRIVERS
The rating assignments and affirmations reflect:
--Sufficient pro forma asset coverage provided to the Notes and MRPS as calculated per the fund's asset coverage tests;
--The structural protections afforded by mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of Clearbridge Investments, LLC as investment subadviser.
CBA, CEM, CTR, and EMO are non-diversified, closed-end management investment companies sharing a similar investment goal of obtaining a high level of total return with an emphasis on current distributions. The funds invest the majority of their portfolios in equity securities of publicly-traded Master Limited Partnerships (MLP) and related investments in the energy infrastructure sector. These companies gather, transport, process, store, distribute or market natural gas, natural gas liquids, coal, crude oil, refined petroleum products or other natural resources, or explore, develop, manage or produce such commodities.
The funds' asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests), per the 'AAA' rating guidelines for the senior notes, and the 'AA' rating guidelines for the MRPS, outlined in Fitch's closed-end fund criteria, were in excess of 100%. These are the minimum asset coverage guideline required by the funds' governing documents.
The Fitch OC tests calculate asset coverage by applying haircuts to portfolio holdings based on historical volatility and diversification of the assets, and measure their ability to cover both on and off-balance sheet liabilities at the stress level that corresponds to the assigned rating.
The funds' asset coverage ratios for the senior notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act) at current market values, were in excess of 300%. The funds' asset coverage ratios for total leverage, including the MRPS, as calculated in accordance with the 1940 Act also at current market values, are in excess of 200%. These are the minimum asset coverage ratios required by the funds' governing documents.
NOTES STRUCTURAL PROTECTIONS
Should the asset coverage tests decline below their minimum threshold amounts, under the terms of the Notes the affected fund is required to deliver notice to the note purchasers. The fund manager is then expected to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and the 1940 Act test breaches) within a pre-specified time period.
MRPS STRUCTURAL PROTECTIONS
Should the MRPS Asset Coverage Test or Fitch OC Test decline below their minimum threshold amounts, the funds' governing documents require them to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and Asset Coverage Test breaches) within a pre-specified time period.
The funds have entered into credit agreements with several lenders. The rights of lenders to receive principal and interest payments on borrowings under the agreement are senior to the rights of the MRPS holders of the funds to receive payment of dividends and redemptions.
Under the credit agreements, the funds may not be permitted to redeem MRPS or make dividend payments unless at such time no event of default or other circumstance exists under the credit agreement that would limit or block redemption payments.
LMPFA and Clearbridge are wholly owned subsidiaries of Legg Mason, Inc., a global asset management firm with $733 billion in assets under management as of Sept. 30, 2016. Clearbridge is Legg Mason, Inc.'s largest equity manager with approximately $111 billion in assets under management as of Sept. 30, 2016.
The rating is based on the terms of the Notes and MRPS stipulating mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines. Should the funds fail to cure an asset coverage breach, or the note purchasers not declare the Notes due and payable upon an event of default due to an asset coverage breach, this may lengthen exposure to market value risk and cause the ratings to be lowered by Fitch.
Fitch's rating on the MRPS could be negatively affected by a material change in the portfolio composition, or a change in the credit agreement terms that increases the likelihood that a MRPS dividend or redemption payment could be delayed.
The ratings may also 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.
Fitch has affirmed the following ratings:
Clearbridge American Energy MLP Fund Inc. (CBA)
--$31,000,000 Series A Senior Notes 3.25% due on Oct. 15, 2018 affirmed at 'AAA';
--$33,695,652 Series B Senior Notes 3.89% due on Oct. 15, 2020 affirmed at 'AAA';
--$47,847,826 Series C Senior Notes 4.51% due on Oct. 15, 2023 affirmed at 'AAA';
--$42,456,522 Series D Senior Notes 4.66% due on Oct. 15, 2025 affirmed at 'AAA';
--$3,000,000 Series A MRPS 4.37% due on July 23, 2024 affirmed at 'AA';
--$7,000,000 Series B MRPS 4.55% due on July 23, 2026 affirmed at 'AA';
--$4,100,000 Series C MRPS 4.01% due on Aug. 7, 2022 affirmed at 'AA';
--$10,900,000 Series D MRPS 4.30% due on Aug. 7, 2024 affirmed at 'AA'.
Clearbridge Energy MLP Fund Inc. (CEM)
--$12,925,764 Series A Senior Notes 4.20% due on April 30, 2026 affirmed at 'AAA';
--$40,393,013 Series A Senior Notes 3.65% due on June 6, 2023 affirmed at 'AAA';
--$40,393,013 Series B Senior Notes 3.78% due on June 6, 2025 affirmed at 'AAA';
--$40,393,013 Series B Senior Notes 3.53% due on July 12, 2019 affirmed at 'AAA';
--$82,401,747 Series C Senior Notes 4.06% due on July 12, 2022 affirmed at 'AAA';
--$72,707,423 Series D Senior Notes 4.21% due on July 12, 2024 affirmed at 'AAA';
--$12,117,904 Series H Senior Notes 2.87% due on June 11, 2021 affirmed at 'AAA';
--$20,196,507 Series I Senior Notes 3.46% due on June 11, 2025 affirmed at 'AAA';
--$20,196,507 Series J Senior Notes 3.56% due on June 11, 2027 affirmed at 'AAA';
--$28,275,109 Series K Senior Notes 3.76% due on June 11, 2030 affirmed at 'AAA';
--$5,200,000 Series A MRPS 3.85% due on Jan. 8, 2021 affirmed at 'AA';
--$6,400,000 Series B MRPS 4.18% due on Jan. 8, 2023 affirmed at 'AA';
--$5,800,000 Series C MRPS 3.52% due on June 11, 2021 affirmed at 'AA';
--$16,000,000 Series D MRPS 4.16% due on June 11, 2025 affirmed at 'AA';
--$5,200,000 Series E MRPS 3.52% due on June 11, 2021 affirmed at 'AA';
--$8,200,000 Series F MRPS 4.16% due on June 11, 2025 affirmed at 'AA';
--$8,200,000 Series G MRPS 4.26% due on June 11, 2027 affirmed at 'AA'.
Clearbridge Energy MLP Total Return Fund Inc. (CTR)
--$19,683,168 Series A Senior Notes 3.33% due on March 28, 2020 affirmed at 'AAA';
--$45,693,069 Series B Senior Notes 3.93% due on March 28, 2023 affirmed at 'AAA';
--$52,019,802 Series C Senior Notes 4.08% due on March 28, 2025 affirmed at 'AAA';
--$7,029,703 Series D Senior Notes 3.33% due on Aug. 26, 2022 affirmed at 'AAA';
--$7,029,703 Series E Senior Notes 3.60% due on Aug. 26, 2024 affirmed at 'AAA';
--$10,544,555 Series F Senior Notes 3.76% due on Aug. 26, 2026 affirmed at 'AAA';
--$3,000,000 Series A MRPS 3.69% due on March 26, 2020 affirmed at 'AA';
--$2,500,000 Series B MRPS 4.07% due on March 28, 2022 affirmed at 'AA';
--$8,500,000 Series C MRPS 4.26% due on March 26, 2024 affirmed at 'AA'.
Clearbridge Energy MLP Opportunity Fund Inc. (EMO)
--$27,420,382 Series A Senior Notes 3.27% due on Feb. 7, 2020 affirmed at 'AAA';
--$34,471,338 Series B Senior Notes 3.87% due on Feb. 7, 2023 affirmed at 'AAA';
--$41,522,293 Series C Senior Notes 4.02% due on Feb. 7, 2025 affirmed at 'AAA';
--$15,668,790 Series D Senior Notes 3.33% due on Aug. 26, 2022 affirmed at 'AAA';
--$3,917,197 Series E Senior Notes 3.76% due on Aug. 26, 2026 affirmed at 'AAA';
--$4,900,000 Series A MRPS 3.69% due on March 26, 2020 affirmed at 'AA';
--$4,100,000 Series B MRPS 4.07% due on March 28, 2022 affirmed at 'AA';
--$14,000,000 Series C MRPS 4.26% due on March 26, 2024 affirmed at 'AA'.
For additional information about Fitch closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.
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The sources of information used to assess this rating were the public domain and Legg Mason.
Rating Closed-End Funds and Market Value Structures (pub. 09 Sep 2016)
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