TEXT-Fitch affirms 3 Federated Prime Rate liquidity funds at 'AAAmmf'
Dec 17 - Fitch Ratings has affirmed three money market funds managed by Federated Prime Rate Capital Management LLP (FPR) at 'AAAmmf', as follows: -- Federated Prime Rate Euro Liquidity Fund -- Federated Prime Rate Sterling Liquidity Fund -- Federated Prime Rate US Dollar Liquidity Fund KEY RATING DRIVERS The main drivers of the affirmation are: -- The portfolios' overall credit quality and diversification. -- Minimal exposure to interest rate and spread risks. -- Short maturity profile with high overnight and one-week liquidity, consistent with funds' shareholders profile and concentration. -- The capabilities and resources of Federated Prime Rate Capital Management LLP as asset manager. PORTFOLIO CREDIT QUALITY/DIVERSIFICATION Consistent with Fitch's 'AAAmmf' money market fund rating criteria, the funds seek to maintain a high credit quality by investing exclusively in short-term securities rated at least 'F1' by Fitch or a comparable credit quality by other global rating agencies. As of 3 December 2012, the three funds were 54%, 57% and 70%, respectively, invested in issuers rated 'F1+' or equivalent. Also in line with Fitch's criteria, the funds limit their exposures to individual issuers and counterparties. The funds' Portfolio Credit Factor (PCF), which is a risk-weighted measure of the funds' portfolio assets accounting for the credit quality and maturity profile of the portfolio securities, has consistently been in line with Fitch's 'AAAmmf' rating criteria guideline of 1.50 or less over the last year. MATURITY PROFILE The funds seek to limit interest rate and spread risk consistent with Fitch's ratings criteria for funds rated 'AAAmmf'. Each fund limits its weighted average maturity to reset date (WAM) and weighted average life (WAL) to 60 days and 120 days, respectively. It also limits the maturity date of any single investment to 397 days or less. As of 3 December 2012 the funds' WALs were considerably lower than the maximum levels prescribed in Fitch's rating criteria at 43 days in the EUR and GBP fund and 42 days in the USD fund. LIQUIDITY PROFILE The funds seek to manage investor redemption risk through investment restrictions that aim to maintain sufficient levels of daily and weekly liquidity. In line with Fitch's rating criteria, the funds seek to maintain at least 10% of their assets in securities maturing overnight or other qualifying liquid assets such as government securities and at least 25% in securities maturing within seven days or other qualified liquid assets. As of 3 December 2012, the funds had overnight liquidity of 40% in the GBP and USD fund and 35% in the EUR fund. FUND OBJECTIVES The funds' objective is to maximise current income consistent with the preservation of principal and liquidity by investing in a diversified portfolio of high quality short-term debt and debt related instruments denominated in the relevant fund's base currency. The primary objective is to maintain the net asset value of the undertaking either constant at par (net of earnings) or at the value of the investors' initial capital plus earnings. INVESTMENT ADVISOR FPR, the funds' investment manager, is a wholly-owned subsidiary of the Federated Investors, Inc. (NR). Fitch views Federated's financial resources as consistent with a 'AAAmmf' rating. Federated is a publicly owned investment manager. It was established in 1955 and as of 30 September 2012 had USD364bn in assets under management, including USD270bn in money market funds. The funds are qualifying money market funds domiciled in the UK. They form part of the Federated Prime Rate Cash Management Funds scheme, an investment company with variable capital. The scheme is authorised by the FSA and classified as a UCITS scheme. As of 3 December 2012 the funds had total assets of, respectively, EUR73m, GBP2,740m and USD434m. RATING SENSITIVITY AND SURVEILLANCE The ratings may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch's guidelines for any key rating driver could cause Fitch to downgrade the ratings. For additional information about Fitch's money market fund ratings guidelines, please review the criteria referenced below. To maintain the Money Market Fund ratings, Fitch seeks weekly fund and portfolio holdings information from the funds' administrator and depository - The Bank of New York Mellon (BoNYM, AA-/Stable/F1+) - and conducts surveillance checks against its ratings guidelines. Surveillance data for these funds is available at www.fitchratings.com/FAM > "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, FPR and BoNYM. Applicable criteria, 'Global Money Market Fund Rating Criteria', dated 29 March 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Money Market Fund Rating Criteria