Fitch Ratings has affirmed the ratings assigned to the auction preferred
shares (APS) issued by Franklin Templeton Limited Duration Income Trust
(NYSE AMEX: FTF), a closed-end fund managed by Franklin Advisers, Inc.
(Franklin):
--Series M, 1200 shares outstanding, with a liquidation preference of
$25,000 per share at 'AAA';
--Series W, 1200 shares outstanding, with a liquidation preference of
$25,000 per share at 'AAA';
--Series F, 1200 shares outstanding, with a liquidation preference of
$25,000 per share at 'AAA'.
KEY RATING DRIVERS
The 'AAA' rating affirmation reflects:
-- Sufficient asset coverage provided to the APS by the 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;
-- The capabilities of Franklin as investment advisor.
LEVERAGE
As of Jan. 31, 2014, FTF's total assets were approximately $569 million
and total leverage consisted of $90 million of rated APS and $89 million
of mortgage dollar rolls, or 31% of total assets.
ASSET COVERAGE
At the time of the rating affirmations, 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. These tests serve as minimum asset coverage covenants
required by the fund's governing documents. Should the asset coverage
for the notes decline below 100%, the governing documents require the
fund to restore compliance within 30 days.
Additionally, the fund's asset coverage ratio for preferred shares, as
calculated in accordance with the Investment Company Act of 1940 (the
1940 Act), was in excess of 200%, which is also the minimum asset
coverage required by the fund's governing documents.
FUND PROFILE
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. There is no limit on the percentage of the
fund's assets that may be allocated to each of these investment
categories; provided 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.
At the time of the rating affirmations, the portfolio was comprised of
35% corporate securities, 33% leveraged loans, 23% U.S. government
agency securities, 2% cash and short-term investments and 6% structured
finance securities. A small portion, representing approximately 1% of
net assets, 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.
FUND ADVISOR
Franklin Advisers, Inc., a subsidiary of Franklin Resources, Inc.
(NYSE:BEN) acts as the investment adviser to the fund. As of Jan. 31,
2014, Franklin Resources, Inc. managed approximately $857.2 billion in
assets.
RATINGS SENSITIVITY
The assigned rating may be sensitive to material changes in the leverage
composition, portfolio credit quality or market risk 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's rating guidelines applicable to
debt and preferred stock issued by closed-end funds, please review the
criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Opt-in to receive Fitch's forthcoming research on closed-end funds:
http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 14, 2013).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716220
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823351
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