Legg downgraded on money market funds

Oct 9, 2008 @ 11:56 am

By Sue Asci

Moody's Investors Service announced yesterday that it has downgraded Legg Mason Inc.'s senior debt rating to A3, from A2.

Baltimore-based Legg suffered $650 million in after-tax losses related to money market fund support over the past year, the New York-based ratings service reported.

“The downgrade was driven by the continued pressure on Legg Mason's business profile and profitability resulting from its financial support of constant net asset value money market funds managed by its affiliate, Western Asset Management [Co. of Pasadena, Calif.], and by the continued weak investment performance in its funds across several affiliated managers, which has contributed to significant outflows in the company's long-term assets under management,” Moody’s said in a statement.

Legg has set aside $2.7 billion in cash to meet redemptions and future support needs.

"Legg Mason continues to be well-positioned to manage ongoing volatility in the financial markets, as is reflected in our solid investment grade rating,” Charles J. Daley Jr., Legg’s chief financial officer, wrote in an e-mail.

“The firm's capital raises in both January and May of this year increased our liquidity and fortified our balance sheet. As Moody's noted, we have ample cash to support the current cash collateral needs related to our support of our money funds," he said.

But Legg acknowledged that uncertainty surrounding the money market fund environment contributed to the downgrade.

"Legg Mason has ample cash for the current cash collateral needs of money market fund support; however, pricing uncertainty and potential future asset sales suggest that Legg Mason could experience a material erosion of its excess cash if such sales occurred at prices significantly below the company's current marks,” Matthew Noll, vice president and senior credit officer, said in the statement.

A further rating downgrade is possible, Moody’s noted.

Legg Mason had $923 billion in assets under management as of June 30.

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