August 10, 2015 05:45 PM Eastern Daylight Time
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to the following series of mandatory redeemable preferred shares (MRPS) issued by ClearBridge American Energy MLP Fund Inc. (NYSE: CBA), a non-diversified, closed-end fund advised by Legg Mason Partners Fund Advisor, LLC (LMPFA) and sub-advised by ClearBridge Investments, LLC (ClearBridge).
MRPS rated 'AA':
--Series C Mandatory Redeemable Preferred Shares due Aug. 7, 2022 in amount up to $38,000,000;
--Series D Mandatory Redeemable Preferred Shares due Aug. 7, 2024 in amount up to $37,000,000.
On July 24, 2015, Fitch assigned 'AA' ratings to Series A and Series B MRPS which are pari passu to these new series of MRPS. The issuance will increase fund leverage.
KEY RATING DRIVERS
The ratings reflect:
--Sufficient pro forma asset coverage provided to the MRPS as calculated per the fund's 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 as investment advisor.
FUND PROFILE
The fund commenced its operations on June 26, 2013. The Fund seeks to provide a high level of total return with an equal emphasis on current distributions and capital appreciation through investment in energy master limited partnerships (MLPs). The fund seeks to achieve its objective by investing the majority of the portfolio 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.
FUND LEVERAGE
The fund's pro forma total leverage is $475 million. Pro forma leverage consists of $ 275 million in rated notes, $75 million drawn on the fund's credit facility and $125 million in MRPS. The notes and credit facility are both secured and rank senior and are pari passu in the fund's capital structure.
ASSET COVERAGE
The fund's pro forma asset coverage ratios for the MRPS, as calculated in accordance with the Fitch OC tests per the 'AAA' and 'AA' rating guidelines, respectively, outlined in Fitch's closed-end fund criteria, were in excess of 100%. This is the minimum asset coverage guideline required by the fund's governing documents.
The fund's pro forma asset coverage ratios for all outstanding Notes and MRPS, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), were in excess of 225%, which is the minimum asset coverage required by the fund's governing documents.
STRUCTURAL PROTECTIONS
Should any of the asset coverage tests above decline below their minimum threshold amounts (as tested on the last business day of each week), under the terms of the MRPS, the fund manager is 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).
THE ADVISOR
LMPFA and ClearBridge are wholly owned subsidiaries of Legg Mason, Inc., a global asset management firm with $699 billion in assets under management as of June 30, 2015. ClearBridge is Legg Mason, Inc.'s largest equity manager.
RATING SENSITIVITIES
The rating is based on the terms of the MRPS stipulating mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines. Fail to cure an asset coverage breach 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 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.
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Date of relevant committee: July 23, 2015
The sources of information used to assess this rating were the public domain, LMPFA and ClearBridge.
Applicable Criteria
Rating Closed-End Fund Debt and Preferred Stock (pub. 04 Sep 2014)