Fitch Assigns Rating to Franklin Universal Trust Notes

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has assigned the 'AAA' rating to the following notes issued by Franklin Universal Trust FT, a leveraged multi-sector closed-end fund advised by Franklin Advisers, Inc. (Franklin):

--$60,000,000 of 2.87% senior notes, due Aug. 28, 2018

Proceeds of the note issuance are being used to re-finance existing Fitch-rated 'AAA' senior notes maturing Aug. 28, 2013, which are subsequently marked 'Paid-In-Full'.

KEY RATING DRIVERS

The 'AAA' rating reflects:

--Expectations for exceptionally strong capacity for payment of scheduled dividends and liquidation preference at the end of the term or upon mandatory redemption;

-- Sufficient asset coverage provided to the senior notes by the underlying portfolio of assets;

-- The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;

-- The legal and regulatory parameters that govern the fund's operations;

-- The capabilities of Franklin as investment advisor.

FUND PROFILE

As of July 31, 2013, fund's total assets were $240 million and total leverage was $42 million of notes, or 22% of assets. The new $60 million note issuance increases total leverage to approximately 23%, taking into account a slightly large asset base.

Franklin Universal Trust is a diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended, that commenced investment operations in September 1988. The fund's primary investment objective is high current income consistent with preservation of capital. The fund's secondary investment objective is growth of income through dividend increases and capital appreciation.

Under normal circumstances, the fund invests primarily in two asset classes: high yield bonds and utility stocks. The fund also invests to a lesser extent in foreign equity securities and sovereign debt, in each case U.S. dollar denominated. At the time of the rating assignment, the portfolio was comprised of 67% high yield corporate securities, 32% common equity securities, and 1% cash and short-term investments.

ASSET COVERAGE

The fund's pro forma asset coverage ratios for the notes, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines 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 and evaluated as such by Fitch.

The fund's pro forma asset coverage ratios for the notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), were in excess of 300%, which is the minimum asset coverage required by the 1940 Act at the time of issuance and the fund's governing documents.

STRUCTURAL PROTECTIONS

Should the asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each month), 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.

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 of such failure to the note purchasers and the holders of more than 50% in principal amount of the notes may then declare all the notes then outstanding to be immediately due and payable.

FUND ADVISOR

Franklin Advisers, Inc., a subsidiary of Franklin Resources, Inc. BEN acts as the investment adviser to the fund. As of July 31, 2013, Franklin Resources, Inc. managed approximately $834 billion in assets.

RATINGS SENSITIVITY

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 assigned rating may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch.

For additional information about Fitch's rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

The sources of information used to assess this rating were the public domain and Franklin.

Opt-in to receive Fitch's forthcoming research on closed-end funds:

http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/

Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 14, 2013);

--'Municipal Closed-End Funds Dashboard' (June 4, 2013).

Applicable Criteria and Related Research:

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716220

Municipal Closed-End Funds Dashboard

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709534

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=800665

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