Fitch Affirms Western Asset Ultra Short-Term Funds 'AAA/V1'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'AAA/V1' Fund Credit Quality Ratings (FCQR) and Fund Volatility Ratings assigned to the Western Asset Ultra Short Obligations Fund and the Western Asset Ultra Short Obligations Fund Ltd., both advised by Legg Mason Partners Fund Advisor, LLC (LMPFA) and subadvised by Western Asset Management Company (Western Asset). The funds were launched in January 2015 and are feeder funds that invest in securities through an underlying mutual fund, Ultra Short Obligations Portfolio, which has the same goals and strategies as the funds.

The ratings reflect Fitch's review of the funds' investment and credit guidelines, the portfolios' credit quality and diversification and LMPFA's and Western Asset's capabilities as investment advisor and subadviser, respectively. The 'AAA' FCQR indicates the highest underlying credit quality (or lowest vulnerability to default). The 'V1' rating indicates a very low sensitivity to market risk. On a relative basis, total returns and/or changes in net asset value are expected to exhibit high stability, showing low relative volatility across a broad range of market scenarios.

KEY RATING DRIVERS

Asset Credit Quality

The funds' portfolio composition meets Fitch's criteria for an 'AAA' FCQR. The weighted average rating factor of the portfolios is 0.28, within the range for an 'AAA' FCQR.

The portfolios are comprised largely of short-term securities rated 'F1' or higher. The 'AAA' FCQRs reflect the vulnerability to losses as a result of defaults, and are based on the actual and prospective weighted average credit quality of the portfolio assets. The funds' offering documents indicate that the funds intend to limit their investments in securities that, at the time of purchase, are Tier-2 securities to 5% of such fund's total assets.

Portfolio Sensitivity to Market Risks

The funds' 'V1' Volatility Ratings indicate the low sensitivity to market risk, given the short-dated nature of the assets as mandated by offering documents. The funds manage their market risk by maintaining a dollar-weighted average portfolio maturity (WAM) that does not exceed 90 days under normal circumstances. The funds invests in securities that have remaining maturities of 397 days or less at the time of purchase, taking into account demand features and interest rate provisions.

The funds seek a high level of income, consistent with liquidity and the preservation of capital. The funds may invest in all types of U.S. dollar denominated short-term debt instruments including bank obligations, commercial paper, asset-backed securities, structured instruments, and repurchase agreements.

INVESTMENT ADVISOR

LMPFA is the investment advisor for these funds, and had approximately $214 billion of assets under management (AUM) as of Dec. 31, 2015.

Western Asset is the subadviser for these funds. Western Asset specializes in fixed-income strategies and had approximately AUM of $426 billion as of Dec. 31, 2015. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc (Legg Mason). As of Dec. 31, 2015, Legg Mason's asset management operations, including Western Asset and its supervised affiliates, had aggregate assets under management of approximately $672 billion. Fitch views Legg Mason and Western Asset's investment advisory capabilities, resource commitment, operational controls, corporate governance, and compliance procedures as consistent with the ratings assigned to the funds.

RATING SENSITIVITIES

The ratings are sensitive to material changes in the credit quality or market risk profiles of the funds. A material decrease in portfolio credit quality could result in the FCQR being lowered, while a material increase in portfolio duration could result in fund volatility ratings being lowered.

Fitch utilized stress analysis to test the sensitivity of the funds' ratings against potential changes in the portfolios' credit quality and maturity profiles. Under certain adverse scenarios, if the average credit quality of the portfolios deteriorates and the maturity profiles of portfolio securities are extended to the outer limits of the funds' operating and investment guidelines, the funds' ratings could be lowered.

Fitch receives monthly fund portfolio holdings information including credit quality, market value and duration of the individual securities to conduct surveillance against ratings guidelines. For additional information about Fitch bond fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bond Fund Rating Criteria (pub. 12 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=814528

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001809

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160331006323/en/

Fitch Ratings
Primary Analyst
Greg Fayvilevich
Senior Director
+1-212-908-9151
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Ralph Aurora
Senior Director
+1-212-908-0528
or
Committee Chairperson
Davie Rodriguez, CFA
Senior Director
+1-212-908-0386
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: [email protected]

Source: Fitch Ratings

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