NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned 'AAAmmf' ratings to the following eight money market funds sub-advised by Western Asset Management Company (Western Asset) as follows:
--Western Asset U.S. Treasury Reserves;
--Western Asset Premium U.S. Treasury Reserves;
--Western Asset Institutional U.S. Treasury Reserves;
--Western Asset U.S. Treasury Reserves, Ltd.;
--Western Asset Government Reserves;
--Western Asset Institutional Government Reserves;
--Western Asset Government Money Market Fund, Ltd.;
--Western Asset U.S. Dollar Liquidity Fund.
Western Asset U.S. Treasury Reserves, Western Asset Premium U.S. Treasury Reserves, Western Asset Institutional U.S. Treasury Reserves, and Western Asset U.S. Treasury Reserves, Ltd. are feeder funds that invest all of their investable assets in the U.S. Treasury Reserves master portfolio. Western Asset Government Reserves, Western Asset Institutional Government Reserves, and Western Asset Government Money Market Fund, Ltd. are feeder funds that invest all of their investable assets in the Government Reserves master portfolio.
Both master portfolios are U.S.-registered investment management companies governed by Rule 2a-7 of the Investment Company Act of 1940, as amended, and managed by Legg Mason Partners Fund Advisor, LLC (LMPFA), and have the same investment objectives as the appropriate feeder funds. The Western Asset U.S. Dollar Liquidity Fund is a UCITS (Undertakings for Collective Investment in Transferable Securities) fund governed by Irish law and managed by Western Asset Management Company and is a sub-fund of the umbrella fund, Western Asset Liquidity Funds plc.
Western Asset is the sub-adviser for all funds and provides day-to-day portfolio management. Both LMPFA and Western Asset are wholly owned subsidiaries of Legg Mason, Inc. (LM).
KEY RATING DRIVERS
The 'AAAmmf' ratings reflect:
--The funds' overall credit quality and diversification;
--Low exposure to interest rate and spread risk;
--Holdings of daily and weekly liquid assets consistent with shareholder profiles and concentrations;
--Maturity profiles consistent with Fitch's 'AAAmmf' rating criteria;
--The capabilities and resources of LMPFA and Western Asset.
PORTFOLIO CREDIT QUALITY/DIVERSIFICATION
The funds seek to maintain diversified, high credit quality portfolios consistent with Fitch's criteria for 'AAAmmf' rated MMFs. As of May 31, 2016, the portfolios have a combined 35.8 billion in assets under management. Based on Fitch's asset classification, the U.S. Treasury Reserves portfolio invests 100% of its holdings in U.S. Treasury securities. The Government Reserves portfolio was comprised of Treasuries (5.4%), government agencies (63.1%), and repurchase agreements (31.5%). The Western Asset U.S. Dollar Liquidity Fund invested in deposits (12.6%), certificates of deposit (38.3%), commercial paper (48.4%), and floating rate notes (.7%).
The funds' Portfolio Credit Factors (PCF) are in line with Fitch's 'AAAmmf' rating criteria of 1.50 or less. PCF is a risk-weighted measure of a portfolio of assets that accounts for the portfolio's credit quality and maturity profile.
MATURITY PROFILE
The funds seek to limit interest rate and spread risk by maintaining weighted average maturities (WAM) and weighted average lives (WAL) below 60 days and 120 days, respectively, as per Fitch's AAAmmf criteria. As of May 31, 2016, the U.S. Treasury Reserves and the Government Reserves portfolios had WAMs of 43 days and 40 days, respectively. They had WALs of 106 days and 103 days, respectively. The Western Asset U.S. Dollar Liquidity Fund had a WAM of 38 days and WAL of 42 days.
LIQUIDITY PROFILE
The funds seek to maintain sufficient levels of daily and weekly liquidity to manage investors' flows. Specifically, they invest at least 10% of their total assets in securities offering daily liquidity, and at least 30% in securities maturing within seven days or other qualifying liquid assets.
As of May 31st, 2016, the U.S. Treasury Reserves and Government Reserves portfolios had weekly liquidity well above 30%. The Western Asset U.S. Dollar Liquidity Fund's weekly liquidity was slightly above 30% as of May 31st, and while its regulatory minimum is 20%, the fund's weekly liquidity will be managed to a 30% threshold on an ongoing basis. Fitch's rating criteria for money market funds also considers the degree of shareholder diversification, as large unexpected redemptions could constrain liquidity. The funds' individual shareholder concentrations are appropriately managed by Western Asset through controls and communications in place, combined with available liquidity.
PORTFOLIO OBJECTIVE
The U.S. Treasury Reserves portfolio seeks liquidity and as high a level of current income as is consistent with the preservation of capital from U.S. government obligations, and pursues its investment objectives by investing in U.S. Treasury bills and notes.
The Government Reserves portfolio seeks to maximize current income to the extent consistent with preservation of capital and the maintenance of liquidity. In addition to U.S. Treasuries, the Government portfolio invests in government agency securities and repurchase agreements collateralized by government obligations.
The Western Asset U.S. Dollar Liquidity Fund aims to maintain capital value while seeking to produce a return to the investor in line with prevailing money market rates. It 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
LMPFA is a wholly owned subsidiary of LM one of the largest global asset managers, with assets under management of $670 billion as of March 31st, 2016. Western Asset is a global fixed income manager. As of March 31st, 2016, the total assets under management of Western Asset and its supervised affiliates were approximately $437 billion. Fitch views LM and Western Asset's investment advisory capabilities, resource commitment, operational controls, corporate governance, and compliance procedures as consistent with the ratings assigned to the funds.
RATING SENSITIVITIES
The ratings may be sensitive to material changes in the credit quality, market risk, and/or liquidity profiles of the funds. Temporary breaches from the metrics outlined in Fitch's criteria need not automatically result in a rating change, provided the fund manager is able to address them with credible near-term remedial actions. However, material adverse and continued deviations from Fitch's guidelines for any key rating driver may lead to ratings being placed on Rating Watch Negative or downgraded.
SURVEILLANCE
Fitch will receive fund holdings information and other pertinent fund data from the funds' administrators to conduct surveillance against ratings metrics and to maintain the MMF rating.
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Money Market Fund Rating Criteria (pub. 10 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874565
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005972
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005972
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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