NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Fitch Affirms Ratings on 52 Money Market
Fitch Ratings has affirmed 52 money market funds (MMFs), following a regularly scheduled review of the sector. The MMFs affirmed include 48 U.S.-based MMFs, regulated by the Securities and Exchange Commission (SEC) under rule 2a-7 (Rule 2a-7), as well as four Europe- or Cayman Islands-based MMFs that invest in USD-denominated securities. Collectively, the 52 MMFs had approximately $626.7 billion of assets under management as of June 2014. A complete list of the 52 affirmed MMFs can be found at the bottom of this release, or by following the link above. Monthly surveillance information on each MMF is available at the following link: https://www.fitchratings.com/web_content/pages/fam/mmf/fund-surveillance.htm
KEY RATING DRIVERS
The main drivers for the affirmations are:
--The MMF portfolios' overall credit quality and diversification;
--Low exposure to interest rate and spread risks;
--Holdings of daily and weekly liquid assets consistent with shareholder profiles and concentrations;
--Maturity profiles meeting Fitch's rating criteria;
--The capabilities and resources of the respective investment advisors.
PORTFOLIO CREDIT QUALITY/DIVERSIFICATION
Consistent with Fitch's MMF rating criteria, the reviewed funds seek to maintain high credit quality portfolios by investing exclusively in short-term securities rated at least 'F1' by Fitch or equivalent. MMFs rated 'AAmmf' and 'Ammf' may elect to invest a small percent of their assets in securities rated 'F2' by Fitch or equivalent.
Generally, these MMFs limit their exposures to individual issuers at 10% of the fund's assets, with no more than 5% for those above seven days in tenor. Minor and temporary deviations from this parameter may be incurred mainly due to seasonal cash outflows. The funds also limit their individual repurchase agreement (repo) exposures to individual counterparties to 25% of total fund's assets, provided the counterparties are rated 'A' or higher and that such repos are fully collateralized by high credit quality and liquid government securities.
The reviewed prime MMFs' Portfolio Credit Factor (PCF), which is a risk-weighted measure that considers the credit quality and maturity profile of the portfolio securities, generally met Fitch's 'AAAmmf' rating criterion of 1.50 or less. A number of funds are currently in breach of this criteria metric or have temporarily breached this parameter in the past. Breaches of the PCF metric are typically driven by longer-dated bank exposures.
Specifically, the prime funds managed by SSgA Funds Management, Inc. (SSgA Money Market Fund, SSgA Prime Money Market Fund, and State Street Institutional Liquid Reserves Fund), have occasionally had material breaches of the PCF metric since Fitch's last rating review. The prime funds managed by Federated Investment Management (Federated Prime Cash Obligations Fund and Federated Prime Obligations Fund) also breached PCF a number of times since Fitch's last rating review
Temporary deviations from Fitch's rating criteria will not necessarily trigger a rating action on the affected MMF, provided any deviations do not represent a risk to fund investors and a credible and achievable remediation plan is in place. Although PCF levels for the SSgA and Federated prime funds have come down in recent weeks, sustained and material adverse deviations may lead the ratings of affected MMFs to be placed on Rating Watch Negative or downgraded.
As MMFs hold sizable exposures to the banking sector, Fitch will monitor how MMF managers proactively manage and find suitable high quality replacements to those banks likely to be downgraded as a result of changing assumptions of sovereign support for banks. These are likely to lead to downward revisions of Support Rating Floors (SRF) for banks in the U.S., Europe and a handful of other countries within the next one to two years. Where bank's Long-Term Issuer Default Ratings (IDR) are driven by their SRF, this is likely to result in downgrades of these IDRs, as indicated by the revision of Outlooks to Negative on March 26, 2014. As a result and absent mitigating fundamental improvements, some banks held by MMFs may see their Short-Term rating falling below the 'F1' level.
The reviewed MMFs seek to limit interest rate and spread risk by maintaining their weighted average maturity (WAM) and weighted average life (WAL) below 60 days and 120 days, respectively. These funds also limit the maturity date of any single investment to 397 days with exception of floating rate securities issued by the U.S. government or government agencies, which could have maturities as long as 730 days. Portfolios and/or individual securities maturity limits may be lower, in line with the funds' or asset managers' investment policy and depending on issuers' creditworthiness.
The funds seek to maintain sufficient levels of daily and weekly liquidity to meet investors' redemption requests. Specifically, taxable MMFs rated 'AAAmmf' invest at least 10% of total assets in securities offering daily liquidity and at least 25% of total assets in securities providing weekly liquidity in line with Fitch's rating criteria. Tax-exempt MMFs invest at least 25% of their assets in securities offering weekly liquidity, consistent with Fitch's MMF rating criteria. The funds fully met the respective liquidity targets as of the review date. In limited circumstances, some funds have temporarily deviated from Fitch's liquidity guidelines due to outflows. Fitch expects liquidity levels to be restored in a timely manner.
These MMFs seek to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity.
Fitch views the investment advisory capabilities, resource commitment, operational controls, corporate governance, and compliance procedures of the respective fund's investment advisors as consistent with the ratings assigned to the funds.
MONEY FUND REFORM
Fitch's ratings review reflects the current regulatory structure of U.S. MMFs. On July 24 the SEC voted to adopt rule changes to money fund regulations under Rule 2a-7. Under the new rules some money funds would be required to float their net asset values (NAV) and some would have the ability to impose liquidity fees and/or redemption gates at a time of stress. The SEC has provided the industry two years to implement these structural changes.
Given the long implementation period for the reforms, Fitch's affirmation of rated money funds takes into account the current structure and operations of money funds. So far there have not been material outflows from money funds following adoption of the reforms, but Fitch continues to monitor shareholder flows, as well as funds' liquidity and portfolios. The funds' ratings may be sensitive to material changes in the credit quality, market risk, and/or liquidity profiles of the funds, or drastic changes in shareholder asset flows.
RATING SENSITIVITIES AND SURVEILLANCE
The ratings may be sensitive to material changes in the credit quality, market risk, and/or liquidity profiles of the funds. Temporary deviations from Fitch's criteria need not automatically result in rating changes, provided the fund manager is able to address them with credible near-term remedial actions. However, material adverse and continued deviations from Fitch's guidelines for any key rating driver may lead to the rating being placed on Rating Watch Negative or downgraded.
Fitch receives weekly fund holdings information and other pertinent fund data from the funds' administrators and managers to conduct surveillance against ratings guidelines and maintain its money market fund ratings.
Surveillance data for the funds is available at https://www.fitchratings.com/web_content/pages/fam/mmf/fund-surveillance.htm
For additional information about Fitch's MMF ratings guidelines, please review the criteria referenced below.
Fitch affirms the ratings on the following MMFs:
--AllianceBernstein Exchange Reserves at 'AAAmmf';
--AllianceBernstein Government Reserves MMF at 'AAAmmf';
--Alpine Municipal Money Market Fund at 'AAmmf';
--BMO Government Money Market Fund at 'AAAmmf';
--BMO Prime Money Market Fund at 'AAAmmf';
--BNY Mellon U.S. Dollar Liquidity Fund at 'AAAmmf';
--BofA Government Plus Reserves at 'AAAmmf';
--BofA Government Reserves at 'AAAmmf';
--BofA Money Market Reserves at 'AAAmmf';
--BofA Municipal Reserves at 'AAAmmf';
--BofA Treasury Reserves at 'AAAmmf';
--Daily Assets Fund Institutional at 'AAAmmf';
--Dreyfus Cash Management at 'AAAmmf';
--Dreyfus Institutional Cash Advantage Fund at 'AAAmmf';
--Dreyfus Institutional Reserves Money Fund at 'AAAmmf';
--Dreyfus Institutional Reserves Treasury Fund at 'AAAmmf';
--Dreyfus Institutional Reserves Treasury Prime Fund at 'AAAmmf';
--Federated Government Obligations Fund at 'AAAmmf';
--Federated Municipal Obligations Fund at 'Ammf';
--Federated Prime Cash Obligations Fund at 'AAAmmf';
--Federated Prime Obligations Fund at 'AAAmmf';
--Federated Short-Term U.S. Prime Fund at 'AAAmmf';
--Federated Tax-Free Obligations Fund at 'AAAmmf';
--First American Prime Obligations Fund at 'AAAmmf';
--First American Treasury Obligations Fund at 'AAAmmf';
--First American US Treasury Money Market Fund at 'AAAmmf';
--Goldman Sachs Financial Square Prime Obligations Fund at 'AAAmmf';
--JPMorgan Prime Money Market Fund at 'AAAmmf';
--JPMorgan U.S. Government Money Market Fund at 'AAAmmf';
--Milestone Treasury Obligations Fund at 'AAAmmf';
--Morgan Stanley Institutional Liquidity Fund - Prime Portfolio at 'AAAmmf';
--Morgan Stanley Institutional Liquidity Fund - Tax Exempt Portfolio at 'AAAmmf';
--Short-Term Investments Trust Government & Agency Portfolio at 'AAAmmf';
--Short-Term Investments Trust Liquid Assets Portfolio at 'AAAmmf';
--Short-Term Investments Trust STIC Prime Portfolio at 'AAAmmf';
--Short-Term Investments Trust Treasury Portfolio at 'AAAmmf';
--SSgA Money Market Fund at 'AAAmmf';
--SSgA Prime Money Market Fund at 'AAAmmf';
--SSgA U.S. Government Money Market Fund at 'AAAmmf';
--SSgA U.S. Treasury Money Market Fund at 'AAAmmf';
--State Street Institutional Liquid Reserves Fund at 'AAAmmf';
--State Street Institutional Treasury Money Market Fund at 'AAAmmf';
--State Street Institutional Treasury Plus Money Market Fund at 'AAAmmf';
--State Street Institutional U.S. Government Money Market Fund at 'AAAmmf';
-Virtus Insight Money Market Fund at 'AAAmmf';
--Wells Fargo Advantage Municipal Cash Management Money Market Fund at 'AAAmmf';
--Wells Fargo Advantage National Tax-Free Money Market Fund at 'AAAmmf';
--Western Asset Institutional Liquid Reserves at 'AAAmmf';
--Western Asset Institutional Liquid Reserves, Ltd. at 'AAAmmf';
--Western Asset Institutional U.S. Treasury Obligations Money Market Fund at 'AAAmmf';
--Western Asset U.S. Treasury Obligations Money Market Fund, Ltd. at 'AAAmmf';
--Williams Capital Government Money Market Fund at 'AAAmmf';.
Additional information is available at www.fitchratings.com. The sources of information used to assess this rating were the public domain and the respective fund's investment advisor and/or administrator.
Applicable Criteria and Related Research:
--'Global Money Market Fund Rating Criteria' (January 2014);
--'SEC Reforms Money Fund Structure' (July 2014);
--'US Money Fund Reform Creates Uncertainty for LGIPs' (July 2014);
--'US Fund Mgrs Position Ahead of Reform; Dislocation Likely' (July 2014);
--'Fitch Introduces New Money Market Funds Factsheets' (July 2014);
--'Reverse Repo Program Gains Influence' (June 2014).
Applicable Criteria and Related Research:
Global Money Market Fund Rating Criteria
SEC Reforms Money Fund Structure