NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today assigned a 'AAAmmf' rating to Western Asset Institutional Liquid Reserves, Ltd., a Cayman Islands-incorporated prime money market fund and managed by Legg Mason Partners Fund Advisor, LLC (LMPFA). Western Asset Management Company (Western Asset) is the fund's subadviser and provides the day-to-day portfolio management. Both LMPFA and Western Asset are wholly owned subsidiaries of Legg Mason, Inc. (NYSE: LM).
KEY RATING DRIVERS:
The main drivers for the rating assignment are:
-- the fund's overall credit quality and diversification;
-- short maturity profile;
-- minimal exposure to interest rate and spread risks;
-- overnight and one-week liquidity profile;
-- the capabilities and resources of LM and Western Asset as investment subadvisor.
The 'AAAmmf' money market fund rating reflects the fund's extremely strong capacities to achieve the investment objectives of preserving principal and providing shareholder liquidity through limiting credit, market and liquidity risk.
PORTFOLIO CREDIT QUALITY/DIVERSIFICATION
The fund is a feeder fund that invests all its investable assets in a master portfolio, Liquid Reserves Portfolio (the portfolio), which is a U.S.-registered investment management company and has the same investment objective as the fund. The portfolio seeks to maintain a high credit quality consistent with Fitch's criteria for 'AAAmmf'-rated money market funds by investing exclusively in short-term securities rated at least 'A/F1' by Fitch or equivalent. Counterparty risk is limited by transacting with entities rated 'F1' or higher, or those that are integrated members of financial institutions rated 'A/F1' or higher.
As of Oct. 31, 2011 the portfolio totaled $40.2 billion in assets under management, and, based on Fitch's asset classifications, was comprised of commercial paper issued by financial and non-financial entities (48.8%), certificates of deposit (21.0%), bank notes (12.5%), time deposits (10.7%), repurchase agreements backed by U.S. treasury collateral (4.1%) and direct investments in U.S. Treasury or agency collateral (2.9%).
As of Oct. 31, 2011 the portfolio's Portfolio Credit Factor (PCF) met Fitch's 'AAAmmf' rating criterion of 1.50 or less. The PCF is a risk-weighted measure of the portfolio's assets that accounts for the credit quality and maturity profile of the portfolio's securities.
MATURITY PROFILE
The portfolio seeks to limit interest rate and spread risk consistent with Fitch's ratings criteria for funds rated 'AAAmmf'. The portfolio limits its weighted average maturity to reset date (WAMr) and weighted average final maturity (WAMf) to 60 days and 120 days, respectively. As of Oct. 31, 2011 the portfolio had a WAMr of 56 days and a WAMf of 91 days.
LIQUIDITY PROFILE
The portfolio's additional investment restrictions are aimed at maintaining sufficient levels of daily and weekly liquidity to meet investors' redemption requests. In line with amended Rule 2a-7 under the Investment Company Act of 1940, which governs the investment activities and operations of U.S. money market funds, the portfolio must invest at least 10% of total assets in daily liquid assets and at least 30% of total assets in weekly liquid assets.
As of Oct. 31, 2011, the portfolio met the liquidity requirements mandated by Rule 2a-7 and was also in line with the liquidity guidelines outlined in Fitch's rating criteria. Fitch's rating criteria for money market funds also considers the degree of shareholder diversification, as large unexpected redemptions could constrain liquidity. The fund's individual shareholder concentration, while large in Fitch's opinion, is appropriately managed by Western Asset through controls and communications in place, combined with available liquidity.
PORTFOLIO OBJECTIVES
The portfolio seeks to provide the fund shareholders with liquidity and as high a level of current income as is consistent with preservation of principal. The portfolio pursues its investment objectives by investing in diversified, high-credit quality money market securities, including bank obligations, commercial paper, repurchase agreements and other short-term debt securities. These instruments may be issued or guaranteed by all types of issuers, including U.S. and foreign banks and other private issuers, the U.S. government or any of its agencies or instrumentalities, U.S. states and municipalities, or foreign governments.
INVESTMENT ADVISOR
Founded in 1899 in Baltimore, Maryland, LM is one of the largest global asset managers, with assets under management of $629 billion as of Oct. 31, 2011. LM provides investment management solutions to a diverse client base, which includes governments, institutions, corporations and individuals worldwide. Fitch views LM's investment advisory capabilities, resource commitment, operational controls, corporate governance, and compliance procedures as consistent with the rating assigned to the fund.
RATING SENSITIVITY AND SURVEILLANCE:
The rating may be sensitive to material changes in the credit quality, market or liquidity 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, including adverse changes in shareholder concentration and/or increase in unanticipated cash outflows. Given the portfolio's primary investment focus on domestic and foreign issuers in the financial sector, the ratings may also be sensitive to material adverse changes in the sector globally.
Fitch expects to receive weekly portfolio holdings information from the fund's administrator - State Street Bank and Trust Company - to conduct surveillance against ratings guidelines and maintain its money market fund rating.
Surveillance and analytical information on this fund is expected to be available in the Funds Surveillance section of Fitch's website (www.fitchratings.com, Surveillance > Funds) in the near future.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The sources of information used to assess this rating were the public domain, LM and Western Asset.
Applicable Criteria and Related Research:
--'Global Money Market Fund Rating Criteria', Apr. 4, 2011;
--'U.S. Money Market Funds Sector Update, Oct. 18, 2011.
Applicable Criteria and Related Research:
Global Money Market Fund Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614345
U.S. Money Market Funds Sector Update: Q3 2011 -- AMENDED
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=654012
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