Fitch Affirms Franklin Universal Trust Notes at 'AAA'
CHICAGO -- March 13, 2013
Fitch Ratings has affirmed the 'AAA' rating assigned to the following notes
issued by Franklin Universal Trust (NYSE: FT), a leveraged multi-sector
closed-end fund advised by Franklin Advisers, Inc. (Franklin):
--$42,000,000 of 5.87% senior notes due Aug. 28, 2013.
KEY RATING DRIVERS
The 'AAA' rating affirmation reflects:
--Sufficient asset coverage provided to the senior notes by the underlying
portfolios 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.
As of Feb. 22, 2013, FT's total assets were approximately $240 million and
total leverage was approximately $44 million in senior notes or 18% of total
At the time of the rating affirmations, the fund's asset coverage ratios, as
calculated in accordance with the Fitch total and net overcollateralization
tests (Fitch OC tests) per the 'AAA' rating guidelines outlined in Fitch's
applicable criteria, were in excess of 100%, which is the minimum asset
coverage amount deemed consistent with an 'AAA' rating. These tests serve as
minimum asset coverage covenants required by the fund's governing documents.
Should the asset coverage for the notes decline below 100%, the governing
documents require the fund to restore compliance within 30 days.
Additionally, the fund's asset coverage ratio for debt, as calculated in
accordance with the Investment Company Act of 1940, was in excess of 300%,
which is also a minimum asset coverage required by the fund's governing
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 affirmations, the portfolio comprised 69% high yield corporate
securities, 30% common equity securities, and 1% cash and short-term
Franklin Advisers, Inc., a subsidiary of Franklin Resources, Inc. (NYSE:BEN)
acts as the investment adviser to the fund. As of Sept. 30, 2012, Franklin
Advisers, Inc. managed approximately $432 billion in assets.
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
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 these ratings were the public
domain, and Franklin.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012);
--'2013 Outlook: Closed-End Funds' (Dec. 14, 2012).
Applicable Criteria and Related Research
2013 Outlook: Closed-End Funds
Rating Closed-End Fund Debt and Preferred Stock
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ON THE FITCH WEBSITE.
Russ Thomas, +1-312-368-3189
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Viktoria Baklanova, CFA, PhD, +1-212-908-9162
Ralph Aurora, +1-212-908-0528
Brian Bertsch, +1-212-908-0549
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