NEW YORK--(BUSINESS WIRE)--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
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.