Fitch Affirms Western Asset Liquid Reserves, Ltd. at 'AAAmmf'
Fitch Ratings has affirmed the 'AAAmmf' rating of Western Asset Institutional Liquid Reserves, Ltd., a Cayman Islands-incorporated prime money market fund 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 affirmation are:
--The fund's overall credit quality and diversification;
--Maturity profile consistent with Fitch's criteria for 'AAAmmf' money market funds;
--Minimal exposure to interest rate and spread risks; and
--The capabilities and resources of LM and Western Asset as subadvisor.
The 'AAAmmf' money market fund rating reflects the fund's extremely strong capacities to achieve its investment objectives of preserving principal and providing shareholder liquidity through limiting credit, market, and liquidity risk. 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.
FUND CREDIT PROFILE
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 'F1' by Fitch or equivalent. Counterparty risk in repos conducted by the fund is managed by transacting with entities rated 'F1' or higher, or those that are integrated members of financial institutions rated 'F1' or higher.
As of Oct. 31, 2012 the portfolio had $70.2 billion in assets under management. As of Oct. 12, 2012 the portfolio's Portfolio Credit Factor (PCF) met Fitch's 'AAAmmf' rating criterion of 1.50 or less. PCF is a risk-weighted measure of the fund's portfolio assets that accounts for the credit quality and maturity profile of a fund's portfolio securities.
The portfolio seeks to manage interest rate and spread risk consistent with Fitch's ratings criteria for funds rated 'AAAmmf' by limiting its weighted average maturity (WAM) and weighted average life (WAL) to 60 days and 120 days, respectively. As of Oct. 31, 2012, the portfolio had a WAM of 53 days and a WAL of 78 days.
The fund's additional investment restrictions are aimed at maintaining sufficient levels of daily and weekly liquidity to meet investor 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 fund invests at least 10% of its portfolio in daily liquid assets and at least 30% of its portfolio in weekly liquid assets.
As of Oct. 12, 2012, the fund fully 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.
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.
Founded in 1899 in Baltimore, Maryland, LM ('NR' by Fitch) is a large global asset manager, with assets under management of $651 billion as of Sept. 30, 2012. LM provides investment management solutions to a diverse client base, which includes governments, institutions, corporations and individuals worldwide. Fitch views LM and Western Asset'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 ratings may be sensitive to material changes in the credit quality, market or liquidity risk profiles of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings 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 receives weekly portfolio holdings information from the funds' administrator to conduct surveillance against ratings guidelines and maintain its money market fund ratings.
Surveillance and analytical information on this fund is available in the Funds Surveillance section of Fitch's website (www.fitchratings.com, 'Surveillance' then 'Funds').
The sources of information used to assess this rating were the public domain, LM and Western Asset.
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.
Applicable Criteria and Related Research:
--'Global Money Market Fund Rating Criteria', March 29, 2012;
--'U.S. Money Market Funds Sector Update: First-Quarter 2012, April 16, 2012.
Applicable Criteria and Related Research:
U.S. Money Market Funds Sector Update: First-Quarter 2012
Global Money Market Fund Rating Criteria
Viktoria Baklanova, Ph.D., CFA, +1 212-908-9162
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