Fitch Ratings assigns 'AA' ratings to the following mandatory
redeemable preferred shares (MRPS):
ClearBridge Energy MLP Opportunity Fund (NYSE: EMO)--$15,000,000
3.69% series A MRPS due March 26, 2020 'AA';--$12,500,000 4.07%
series B MRPS due March 28, 2022 'AA';--$42,500,000 4.26% series C
MRPS due March 26, 2024 'AA'.
ClearBridge Energy MLP Total Return Fund (NYSE:
CTR)--$15,000,000 3.69% series A MRPS due March 26, 2020
'AA';--$12,500,000 4.07% series B MRPS due March 28, 2022
'AA';--$42,500,000 4.26% series C MRPS due March 26, 2024 'AA'.
Fitch has also affirmed the 'AAA' ratings assigned to the funds'
outstanding notes. A full list of ratings 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
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
As of February 28th CTR pro-forma total assets were $1,431
million, supporting $180 million of Fitch-rated secured senior
notes, $100 million of bank borrowing (pari-passu to the notes),
and $70 million of Fitch-rated MRPS.
As of the same date, EMO total assets were $1,259 million,
supporting $150 million of Fitch-rated secured senior notes and
$115 million of bank borrowing (pari-passu to the notes), and $70
million of Fitch-rated MRPS.
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 measure 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 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
Stockhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528MLP
Closed-End Funds: A Capital Structure Case
Studyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=7238392015
Outlook: Closed-End
Fundshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=824608
Additional DisclosureSolicitation
Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982077ALL
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
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ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Fitch RatingsPrimary AnalystYuriy Layvand, CFA,
+1-212-908-9191DirectorFitch Ratings, Inc.33 Whitehall StreetNew
York, New York, 10004orSecondary AnalystBenjamin Han,
+1-212-908-9177AnalystorCommittee ChairpersonIan Rasmussen,
+1-212-908-0232Senior DirectororMedia RelationsAlyssa Castelli, New
York, +1 212-908-0540alyssa.castelli@fitchratings.comElizabeth
Fogerty, New York, +1
212-908-0526elizabeth.fogerty@fitchratings.com