KEY RATING DRIVERS
The rating assignments and affirmations reflect:
--Sufficient asset coverage provided to the senior notes 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
CEM, CBA, CTR, and EMO are non-diversified, closed-end management investment companies sharing similar investment goals, including obtaining a high level of total return with an emphasis on current distributions. The funds invest the majority of their portfolios securities of publicly-traded Master Limited Partnerships (MLP) 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.
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 fund is 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.
LMPFA and ClearBridge are wholly owned subsidiaries of Legg Mason, Inc., a global asset management firm with
Fitch affirms the following ratings at 'AAA':
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:
Additional information is available at www.fitchratings.com.
--'Rating Closed-End Fund Debt and Preferred Stock' (
--'MLP Closed-End Funds: A Capital Structure Case Study' (
--'2014 Outlook: U.S. Closed-End Fund Leverage' (
Rating Closed-End Fund Debt and Preferred Stock
MLP Closed-End Funds: A Capital Structure Case Study
2014 Outlook: U.S. Closed-End Fund Leverage
Michael Swan, +1 212-908-9108
Source: Fitch Ratings
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