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Fitch Affirms Franklin Templeton Limited Duration Income Trust's Auctions Preferred Shares at 'AAA'

^{Published on 2011-03-25 12:55:50 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'AAA' rating assigned to the following preferred shares issued by Franklin Templeton Limited Duration Income Trust (NYSE: FTF), a leveraged multi-sector closed-end fund managed by Franklin Advisers, Inc.:

--$90,000,000 of auction preferred shares (APS), consisting of series M, W and F, each with a liquidation preference of $25,000 per share.

The main drivers of the rating affirmation are sufficient asset coverage relative to Fitch's criteria at the 'AAA' rating level, 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 Franklin Advisers, Inc. as investment advisor. Fitch's rating on the APS speaks only to the credit risk of the security and not to potential liquidity in the secondary market.

As of Feb. 25, 2011, the fund's net assets were approximately $557 million. The fund's total leverage was approximately $179 million or 32% of net assets, consisting of approximately $90 million of rated APS and $89 million of mortgage dollar rolls.

At the time of the rating affirmation, the fund's asset coverage ratio for preferred shares, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), was in excess of 200%, which is the minimum asset coverage required by the 1940 Act. Also, at the time of the affirmation, the fund's asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests per the 'AAA' rating guidelines outlined in Fitch's applicable criteria were in excess of 100%, which are the minimum asset coverage amounts deemed consistent with Fitch's 'AAA' criteria.

Should any of the fund's asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each week) and are not cured within a pre-specified timeframe of 10 business days, the governing documents require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests within 30 calendar days.

Franklin Templeton Limited Duration Income Trust is a diversified, closed-end management investment company, registered under the 1940 Act, as amended, that commenced investment operations in August 2003. The fund's primary investment objective is to seek high current income. The fund's secondary investment objective is to seek capital appreciation to the extent it is possible and is consistent with the fund's primary objective. Under normal market conditions, the fund seeks to achieve its investment objectives by investing primarily in the following three investment categories: (1) mortgage-backed securities and other asset-backed securities; (2) bank loans made to corporate and other business entities; and (3) below investment grade debt securities and other income-producing instruments. The fund's operating documents do not include parameters on the percentage of the fund's assets that may be allocated to each of these investment categories, other than that under normal market conditions, the fund will invest at least 25% of its total assets in each category. Under normal circumstances, the fund's allocation to mortgage-backed and other asset-backed securities is primarily composed of investments in mortgage-backed securities.

As of Feb. 25, 2011, the portfolio was comprised of 33% leveraged loans, 32% corporate securities, 21% U.S. government securities, 9% cash and short-term investments and 4% structured finance securities. The remaining 1% was invested in short-term emerging market sovereign securities. The structured finance portion of the portfolio consisted primarily of senior collateralized loan obligation securities and senior commercial mortgage-backed securities.

Franklin Advisers, Inc. is a wholly owned subsidiary of Franklin Resources, Inc., a global investment management organization with approximately $670 billion in assets under management as of Dec. 31, 2010. Franklin Resources, Inc. manages seven U.S. closed-end funds.

The rating 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 rating 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 these ratings were the public domain, and Franklin Advisers, Inc.

Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria', Aug. 17, 2009;
--'Closed-end Funds: 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: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504986 ]

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