KBRA Affirms the Ratings on the Outstanding Senior Notes and Outstanding Mandatory Redeemable Preferred Shares Issued by Three ClearBridge Closed-End Funds
17 Nov 2023 | New York
KBRA affirms the 'AAA' rating to the Senior Notes and affirms the 'A' rating assigned to the Mandatory Redeemable Preferred Shares ("MRPS") issued by three closed-end funds, (i) ClearBridge MLP and Midstream Fund Inc. (NYSE: CEM), (ii) ClearBridge Energy Midstream Opportunity Fund Inc. (NYSE: EMO) and (iii) ClearBridge MLP and Midstream Total Return Fund Inc. (NYSE: CTR), (the "Funds") managed by ClearBridge Investments ("ClearBridge").
The Funds are registered under the Investment Company Act of 1940 (the “'40 Act”) and are closed-end investment funds, advised by Legg Mason Partners Fund Advisor, LLC and sub-advised by ClearBridge, both of which are wholly owned subsidiaries of Franklin Resources. CEM, EMO and CTR had their Initial Public Offerings in June 2010, June 2011 and June 2012, respectively. Under current investment guidelines, EMO invests at least 80% of its managed assets in energy midstream entities structured as both partnerships and corporations. Moreover, CEM and CTR invest at least 80% of their managed assets in energy master limited partnerships ("MLPs") and energy midstream entities.
Senior Notes Ratings
- ClearBridge MLP and Midstream Fund Inc. (Series D, B, A, I, J and K)
- ClearBridge Energy Midstream Opportunity Fund Inc. (Series C, E and H)
- ClearBridge MLP and Midstream Total Return Fund Inc. (Series C, E and F)
Mandatory Redeemable Preferred Shares Ratings
- ClearBridge MLP and Midstream Fund Inc. (Series I, J, K, L and M)
- ClearBridge Energy Midstream Opportunity Fund Inc. (Series H, I, J, K and L)
- ClearBridge MLP and Midstream Total Return Fund Inc. (Series D and E)
Key Credit Considerations
The ratings for the Senior Notes and MRPS are primarily driven by the Funds’ historically strong asset coverage ratios and liquidity, coupled with ClearBridge’s management experience. The Funds have historically demonstrated their ability to remain in compliance with the '40 Act requirements. Since inception, the senior debt asset coverage has averaged above 400% for the Funds, above the 300% senior debt threshold, and total leverage asset coverage has averaged over 300% for the Funds, above the 200% total leverage threshold. In KBRA’s view, ClearBridge’s ability to withstand various market dislocations demonstrates its strength and the resiliency of its capital structure.
Rating Sensitivities
Changes in asset coverage can occur throughout the life of a transaction which can often be driven by changes to a fund’s NAV, due to actual or anticipated defaults and losses, as well as a reassessment of the underlying asset values. However, the KBRA ratings process incorporates a certain extent of tolerance to changes in asset coverage levels. A deterioration in asset coverage levels below '40 Act requirements and the Fund manager’s inability to liquidate assets and demonstrate intention to cure within the allowed 30-day period could negatively impact the ratings assigned to the Senior Notes and MRPS.
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