Business & Finance
Business and Finance
Business and Finance
Mon, March 21, 2011
Fri, March 18, 2011 Fitch Affirms Preferred Share Ratings of LMP Corporate Loan Fund Inc. at 'AAA'
NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'AAA' ratings assigned to the following auction-rate preferred shares (ARPS) issued by LMP Corporate Loan Fund Inc. (NYSE: TLI), a closed-end fund sub-advised by Citigroup Alternative Investments LLC:
--$35,000,000 of ARPS consisting of Series A and B, each with a liquidation preference of $25,000 per share.
The affirmation follows Fitch's annual review of the fund. The 'AAA' ratings are based on sufficient asset coverage relative to Fitch's criteria provided to the ARPS by the fund's underlying portfolios of assets, the structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the fund's operations and the capabilities of Legg Mason Partners Fund Advisor LLC as advisor and Citigroup Alternative Investments LLC as sub-advisor. Fitch's ratings assigned to the ARPS speak only to timely repayment of interest and principal in accordance with the governing documents and not to potential liquidity in the secondary market.
As of Feb. 28, 2011, TLI had assets of approximately $197 million and leverage of $61 million, or 31% of assets. Leverage consisted of a $25.5 million bank credit facility and of $35 million in Fitch-rated ARPS.
As of the same date, the fund's asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which is the minimum asset coverage amount deemed consistent with an 'AAA' rating. The fund's governing documents require that asset coverage for the ARPS, as calculated in accordance with the Fitch OC tests, be maintained in excess of 100%. As such, should the asset coverage decline below 100%, the governing documents require the funds to alter the composition of their portfolio toward assets with lower discount factors, or to reduce leverage in a sufficient amount to restore compliance within a 58 business day period. Although the length of the exposure period is in excess of the 45 business days used to derive discount factors in Fitch's published rating criteria, Fitch calculated that historically observed worst case losses for leveraged loan securities over a 60 business day period resulted in comparable discount factors to those observed over a 45 business day period. As such, no additional adjustment to the discount factors was made in order to account for the extended exposure period.
Additionally, as of the same date, the fund's asset coverage ratio for total leverage, as calculated in accordance with the Investment Company Act of 1940, was in excess of 200%, which is a minimum asset coverage tests required by the fund's governing documents. As of the same date, the fund's asset coverage ratio for the outstanding bank credit facility, as calculated in accordance with the Investment Company Act of 1940, was in excess of 300%, which is also a minimum asset coverage test required by the fund's governing documents.
As of Feb. 28, 2011, the portfolio consisted of over 85% first lien leveraged loans that are not covenant light, 6% second lien loans and covenant light first loans, 6% in senior secured bonds, and the remainder in cash and other short-term investments (2%) and non-performing/defaulted securities (1%). The portfolio was well diversified from an industry and issuer perspective, with healthcare (14%), computers and electronics, telecommunications (13%) and automobiles, building and material, chemicals (10%) as the top three sectors. Given the industry diversification levels, no additional haircuts were applied for the purposes of calculating the Fitch OC tests.
The fund is a non-diversified closed-end management investment company, registered under the Investment Company Act of 1940, as amended. Citigroup Alternative Investment LLC acts as the sub-adviser to the fund, performing all investment management functions. Citigroup Alternative Investments LLC (d/b/a Citi Capital Advisors) is a wholly owned subsidiary of Citigroup, which had over $1.9 trillion in assets under management as of Dec. 31, 2010. Legg Mason Partners Fund Advisor, LLC acts as the advisor to the fund, performing all legal, operational, compliance and distribution functions. Legg Mason Partners Fund Advisor, LLC is a wholly owned subsidiary of Legg Mason Inc. As of Jan. 31, 2011, Legg Mason Inc. had approximately $672 billion of assets under management.
The ratings may be sensitive to material changes in the credit quality or market risk profiles of the fund. 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 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 sources of information used to assess this rating were the public domain and Legg Mason Inc.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria' (Aug. 17, 2009);
--'Fitch Launches 'CEF Updates' for Closed-End Fund's (Nov. 8, 2010);
--'Closed-End Fund: Evolving Use of Leverage and Derivatives' (Sept. 27, 2010);
--'Closed-End Fund: Redemptions Provide Some Liquidity to Illiquid ARPS Market' (Aug. 31, 2010);
--'Closed-End Fund: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations' (March 18, 2010).
Applicable Criteria and Related Research:
Closed-End Fund Debt and Preferred Stock Rating Criteria
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462492 ]
Closed-End Funds: Evolving Use of Leverage and Derivatives
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=559525 ]
Closed-End Funds: Redemptions Provide Some Liquidity to Illiquid ARPS Market
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=552106 ]
Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504986 ]
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.
