Fitch Affirms Western Asset Liquid Reserves at 'AAAmmf'
NEW YORK -- November 19, 2012
Fitch Ratings has affirmed the 'AAAmmf' rating of Western Asset Institutional
Liquid Reserves, a U.S.-registered prime money market fund governed by Rule
2a-7 of the Investment Company Act of 1940, as amended, and 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
-- 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
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
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
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.
The sources of information used to assess this rating were the public domain
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:
Global Money Market Fund Rating Criteria
U.S. Money Market Funds Sector Update: First-Quarter 2012
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Viktoria Baklanova, Ph.D., CFA, +1 212-908-9162
One State Street Plaza
New York, NY 10004
Ralph R. Aurora, +1 212-908-0528
Aymeric Poizot, +33 1 44 29 92 76
Brian Bertsch, +1 212-908-0549
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