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Fri, November 5, 2010 Fitch Affirms Fifth Third's U.S. Treasury & Govt Money Market Funds at 'AAAmmf'
NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has taken the following rating actions on two money market funds managed by Fifth Third Asset Management, Inc. (FTAM), an indirect wholly owned subsidiary of Fifth Third Bancorp (NASDAQ: FITB):
--Fifth Third U.S. Treasury Money Market Fund (Treasury Fund), affirmed at 'AAAmmf';
--Fifth Third Institutional Government Money Market Fund (Government Fund), affirmed at 'AAAmmf'.
The rating affirmations follow Fitch's annual review of the funds. The main drivers of the affirmations are the credit quality, diversification, the liquidity of the funds' portfolio of assets and the capabilities and resources of FTAM as investment advisor. The 'AAAmmf' ratings reflect the funds' extremely strong capacity to achieve their investment objectives of preserving principal and providing shareholder liquidity through limiting credit, market and liquidity risk. As of Oct. 15, 2010, the Treasury Fund and Government Fund had approximately $1.5 billion and $1.8 billion in total assets under management, respectively.
The Treasury Fund's investment objective, per prospectus, is stability of principal and current income consistent with stability of principal. The Treasury Fund pursues its investment objective by investing in short-term obligations issued by the U.S. Treasury, repurchase agreements collateralized by U.S. Treasury securities, shares of money market investment companies that invest exclusively in these securities, and short-term obligations that are issued by private issuers or agencies or instrumentalities of the U.S. Government that are guaranteed as to principal and interest by the U.S. Government.
The Government Fund's investment objective, per prospectus, is current income consistent with the stability of principal. The Government Fund pursues its investment objective by investing in short-term obligations issued by U. S. Government agencies, repurchase agreements collateralized by U.S. Government agency and Treasury securities, shares of money market investment companies that invest exclusively in these securities, and short-term obligations that are issued by private issuers or agencies or instrumentalities of the U.S. Government that are guaranteed as to principal and interest by the U.S. Government.
The funds seek to mitigate potential repurchase agreement counterparty risk by entering into repurchase agreements with counterparties rated the equivalent of at least 'A/F1'-- a rating level consistent with Fitch's criteria. . The funds normally limit their exposure to individual repurchase agreement counterparties to less than 20%, which is in line with Fitch's 25% guideline. All repurchase agreements entered into by the funds are conducted on an overnight basis. The funds do not set maturity limits on the repurchase agreement collateral, but require at least 102% overcollateralization with daily mark-to-market adjustments from counterparties.
The funds seek to limit interest rate exposure and spread risk by limiting their weighted average maturity to reset date (WAMr) and weighted average final maturity (WAMf) to 60 days and 120 days, respectively, consistent with Fitch's 'AAAmmf' rating criteria. From an operational perspective, the Treasury Fund targets a WAMr of 50 days and a WAMf of 60 days, while the Government Fund targets a WAMr of 50 days and a WAMf of 90 days.
The funds invest in variable rate demand notes (VRDNs) issued by Overseas Private Investment Corp. (OPIC), representing approximately 2% of the Treasury Fund's total assets and 7% of the Government Fund's total assets as of Oct. 15, 2010. OPIC notes benefit from a seven day tender option guaranteed by the full faith and credit of the U.S. government. Fitch views the credit risk of such securities as in line with U.S. government agency obligations.
The Government Fund also invests in student loan short-term notes (SLST) issued by asset backed commercial paper (ABCP) conduit Straight-A Funding, LLC (rated 'F1+' by Fitch). As described in Fitch's press release titled 'Fitch: Straight-A Funding Holdings in Rated Money Market Funds' published on Aug. 27, 2009, SLST notes benefit from a fully-supported liquidity facility provided by the Federal Financing Bank (FFB), the credit risk of which is considered by Fitch to be commensurate with that of the U.S. government. That said, given potential uncertainty with respect to spread volatility relative to other securities issued or guaranteed by the U.S. government, and absent other qualitative considerations, Fitch views exposure to Straight-A Funding LLC of 5% or less as appropriate for 'AAAmmf' rated funds. As of Oct. 15, 2010, SLST represented approximately 4.5% of the Government Fund's total assets.
The funds' additional investment restrictions are aimed at maintaining sufficient levels of daily and weekly liquidity to meet investors' redemption requests. In line with amended Rule 2a-7 under the Investment Company Act of 1940 (which specifically governs investment activities and operations of U.S. money market funds), the funds must invest at least 10% of total assets in securities maturing overnight or other qualified assets such as U.S. Treasuries, and at least 30% of total assets in securities maturing within seven days or other qualified assets. As of Oct. 15, 2010, the funds met the liquidity requirements mandated by Rule 2a-7 and are in line with the liquidity guidelines outlined in Fitch's rating criteria.
The ratings may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch. For additional information about Fitch money market fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.
FTAM, the funds' investment advisor, is a direct wholly owned subsidiary of Fifth Third Bank. Fifth Third Bank is a wholly owned subsidiary of Fifth Third Financial Corporation, which is, in turn, a wholly owned subsidiary of Fifth Third Bancorp (rated 'A-/F1' by Fitch). Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio, that is among the largest money managers in the Midwest United States. As of Sept. 30, 2010, it had $190 billion in assets under management, of which it managed $26 billion for individuals, corporations and not-for-profit organizations. Fitch views FTAM's investment advisory capabilities, financial and resource commitments, operational controls, corporate governance, and compliance procedures as consistent with the 'AAAmmf' ratings assigned to the funds.
Additional information is available at [ www.fitchratings.com ]
The sources of information used to assess this rating were the public domain and FTAM.
Applicable Criteria and Related Research:
--'Global Money Market Fund Rating Criteria', dated Oct. 5, 2009;
--'U.S. Money Market Funds Quarterly: Third-Quarter 2010', dated Oct. 27, 2010;
--'U.S. Money Market Funds: Repurchase Agreement Practices', dated Oct. 4, 2010;
--'Assessing and Comparing Risks of Money Market Funds', dated July 13, 2010.
Applicable Criteria and Related Research:
Assessing and Comparing Risks of Money Market Funds
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=537647 ]
U.S. Money Market Funds Quarterly: Third-Quarter 2010
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=567948 ]
U.S. Money Market Funds: Repurchase Agreement Practices
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=562906 ]
Global Money Market Fund Rating Criteria
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=470368 ]
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.
