Fitch Ratings has affirmed the 'A' Long-Term (LT) Rating assigned to the senior secured notes (notes) issued by
KEY RATING DRIVERS
Fitch's Key Assumptions Within the Agency's Rating Case for the Issuer:
Suf?cient asset coverage provided to the senior notes by the underlying portfolio of assets at the 'A' rating level;
The structural protections afforded by mandatory deleveraging provisions in the event of asset coverage declines;
The legal and regulatory parameters that govern the fund's operations;
Franklin's capabilities as investment advisor.
FUND PROFILE
Under normal circumstances, the fund invests primarily in high yield bonds and utility stocks. The fund also invests to a lesser extent in foreign equity securities and sovereign debt, in each case
ASSET COVERAGE
As of the review date, the fund's asset coverage ratios for the notes, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'A' rating guidelines outlined in Fitch's closed-end fund criteria, were in excess of 100%.
As of the same date, the fund's 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 fund's asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each month), the fund's governing documents require them to cure any breaches by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC tests breaches), or by reducing leverage in a suf?cient amount (for both the Fitch OC tests and the 1940 Act test breaches) within a pre-speci?ed time period consistent with Fitch criteria.
INVESTMENT MANAGER
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is not currently envisioned as the fund invests largely in securities that are ineligible for credit at the 'AA' rating level.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund's assets, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the rating;
A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be downgraded by Fitch;
The ratings could be downgraded if asset coverage cushions erode as a result of market volatility, or if Fitch believes the assets the fund invests in are unlikely to retain suf?cient liquidity and price stability at the current rating stress levels.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
SOURCES OF INFORMATION
The sources of information used to assess this rating were the public domain and
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Prior
355145B#9
LT
A
Affirmed
A
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2022 Electronic News Publishing, source