Fitch Ratings assigns 'AA' ratings to $42 million of mandatory
redeemable preferred shares (MRPS) issued by Clearbridge Energy MLP Fund
Inc. (NYSE: CEM)
--$19,000,000 3.85% series A MRPS, due Jan. 8, 2021 'AA';
--$23,000,000 4.18% series B MRPS, due Jan. 8, 2023 'AA'.
Fitch also affirms the 'AAA' ratings assigned to the senior secured
notes issued by the following closed-end funds managed by ClearBridge
Investments, LLC.
--Clearbridge Energy MLP Fund (NYSE: CEM)
--Clearbridge American Energy MLP Fund (NYSE: CBA)
--ClearBridge Energy MLP Opportunity Fund (NYSE: EMO)
--ClearBridge Energy MLP Total Return Fund (NYSE: CTR)
A complete list of rated note series follows at the end of this press
release.
KEY RATING DRIVERS
The rating assignments and affirmations reflect:
--Sufficient asset coverage provided to senior notes and MRPS as
calculated per the funds' asset coverage tests;
--The structural protections afforded by mandatory collateral
maintenance and de-leveraging provisions in the event of asset coverage
declines;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of ClearBridge Advisors, LLC as investment advisor.
FUNDS PROFILE
CEM, CBA, CTR, and EMO are non-diversified, closed-end management
investment companies sharing a similar investment goal of obtaining a
high level of total return with an emphasis on current distributions.
The funds invest the majority of their portfolios in equity securities
of publicly-traded Master Limited Partnerships (MLPs) and their
affiliates in the energy infrastructure sector. These companies gather,
transport, process, store, distribute or market natural gas, natural gas
liquids, coal, crude oil, refined petroleum products or other natural
resources, or explore, develop, manage or produce such commodities.
FUNDS' LEVERAGE
Using Nov. 2014 holdings, CEM's pro forma total assets were $3,216
million supporting $442 million of Fitch-rated secured senior notes and
$90 million of bank borrowing (pari-passu to the notes), and $42 million
of Fitch-rated junior MRPS.
As of the same date, CBA total assets were $1,530 million supporting
$275 million of Fitch-rated secured senior notes and $102 million of
bank borrowing (pari-passu to the notes).
CTR total assets were $1,409 million supporting $180 million of
Fitch-rated secured senior notes and $100 million of bank borrowing
(pari-passu to the notes).
EMO total assets were $1,257 million supporting $150 million of
Fitch-rated secured senior notes and $100 million of bank borrowing
(pari-passu to the notes).
ASSET COVERAGE
The funds' asset coverage ratio, as calculated in accordance with the
Fitch total and net overcollateralization tests (Fitch OC tests) per the
'AAA' rating guidelines for the senior notes and the 'AA' rating
guidelines for the MRPS, outlined in Fitch's closed-end fund criteria,
were in excess of 100%. These are the minimum asset coverage guideline
required by the funds' governing documents.
The Fitch OC tests calculate standardized asset coverage by applying
haircuts to portfolio holdings based on riskiness and diversification of
the assets and measuring their ability to cover both on and off-balance
sheet liabilities at the stress level that corresponds to the assigned
rating.
The funds' asset coverage ratio for the senior notes, as calculated in
accordance with the Investment Company Act of 1940 (1940 Act) at current
market values, was in excess of 300%. The funds' pro forma asset
coverage ratio for total leverage, including the MRPS, as calculated in
accordance with the 1940 Act also at current market values, was in
excess of 200%. These are the minimum asset coverage ratios required by
the funds' governing documents.
NOTES STRUCTURAL PROTECTIONS
Should the asset coverage tests decline below their minimum threshold
amounts (as tested on the last business day of each week), under the
terms of the notes the fund is required to deliver notice to the note
purchasers within five business days. The fund manager is then expected
to cure the breach by altering the composition of the portfolio toward
assets with lower discount factors (for Fitch OC Tests breaches), or by
reducing leverage in a sufficient amount (for both the Fitch OC Tests
and the 1940 Act test breaches) within a pre-specified time period (a
maximum of 47 calendar days for the Fitch OC Tests and a longer period
for the 1940 Act test).
Failure to cure an asset coverage breach as described above is an event
of default under the terms of the notes. The fund must then deliver a
notice within five business days to the note purchasers and a majority
vote of note purchasers may then declare all the notes then outstanding
to be immediately due and payable.
The funds are also prohibited from paying out a common stock dividend if
it fails to cure a breach to the notes' 300% 1940 Act asset coverage
test. Fitch views this as an added incentive to cure and deleverage in a
timely manner, regardless of acceleration by the notes purchasers.
MRPS STRUCTURAL PROTECTIONS
Should the MRPS Asset Coverage Test and Fitch OC Test decline below
their minimum threshold amounts (as tested weekly) the funds are
required to deliver notice to the MRPS purchasers within five days of
becoming aware of such fact.
The funds' managers are required to cure the breach by altering the
composition of the portfolio toward assets with lower discount factors
(for Fitch OC Tests breaches), or by reducing leverage in a sufficient
amount (for both the Fitch OC Tests and Asset Coverage Test breaches)
within a pre-specified time period (a maximum of 47 calendar days).
THE ADVISOR
LMPFA and ClearBridge are wholly owned subsidiaries of Legg Mason, Inc.,
a global asset management firm with $708 billion in assets under
management as of Sept. 30, 2014. ClearBridge is Legg Mason, Inc.'s
largest equity manager with approximately $103 billion in assets under
management, including $7.6 billion in energy MLPs, as of Sept. 30, 2014.
It provides clients with a diverse line of equity-focused strategies in
various investment options.
Fitch affirms the following ratings at 'AAA':
Clearbridge American Energy MLP Fund (CBA):
--$55,000,000 3.25% series A Senior Secured Notes due Oct. 15, 2018;
--$60,000,000 3.89% series B Senior Secured Notes due Oct. 15, 2020;
--$85,000,000 4.51% series C Senior Secured Notes due Oct. 15, 2023;
--$75,000,000 4.66% series D Senior Secured Notes due Oct. 15, 2025.
Clearbridge Energy MLP Fund (CEM):
--$25,000,000 2.80% series A Senior Secured Notes due July 12, 2015;
--$50,000,000 3.53% series B Senior Secured Notes due July 12, 2019;
--$102,000,000 4.06% series C Senior Secured Notes due July 12, 2022;
--$90,000,000 4.21% series D Senior Secured Notes due July 12, 2024;
--$50,000,000 3.65% series A Senior Secured Notes due June 6, 2023;
--$50,000,000 3.78% series B Senior Secured Notes due June 6, 2025;
--$75,000,000 4.20% Series A Senior Secured Notes due April 30, 2026;
Clearbridge Energy MLP Opportunity Fund (EMO):
--$40,000,000 3.27% series A Senior Secured Notes due Feb. 7, 2020;
--$50,000,000 3.87% series B Senior Secured Notes due Feb. 7, 2023;
--$60,000,000 4.02% series C Senior Secured Notes due Feb. 7, 2025;
Clearbridge Energy MLP Total Return Fund (CTR):
--$30,000,000 3.33% series A Senior Secured Notes due March 28, 2020;
--$70,000,000 3.93% series B Senior Secured Notes due March 28, 2023;
--$80,000,000 4.08% series C Senior Secured Notes due March 28, 2025;
RATINGS SENSITIVITIES
The rating is based on the terms of the notes stipulating mandatory
collateral maintenance and de-leveraging provisions in the event of
asset coverage declines. Should the fund fail to cure an asset coverage
breach, or the note purchasers not declare the notes due and payable
upon an event of default due to an asset coverage breach, this may
lengthen exposure to market value risk and cause the ratings to be
lowered by Fitch.
The ratings may also be sensitive to material changes in the credit
quality or market risk profile 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.
To receive complimentary closed-end fund research, opt-in at the
following link:
http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/
Additional information is available at www.fitchratings.com.
The sources of information used to assess this rating were the public
domain and ClearBridge.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Sept. 4, 2014);
--'MLP Closed-End Funds: A Capital Structure Case Study' (Dec. 2, 2013);
--'2015 Outlook: Closed-End Funds' (Dec. 10, 2014).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528
MLP Closed-End Funds: A Capital Structure Case Study
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723839
2015 Outlook: Closed-End Funds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=824608
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=966455
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