Moodys Investors Service has changed its rating outlook for $1.02 billion of long-term debt issued by Legg Mason to negative from stable, citing uncertainty about money-market funds managed by affiliate Western Asset Management with exposure to structured investment vehicles and other asset-backed commercial paper conduits. Also contributing to the decision were uncertainties about Legg Masons ability to meet Moodys expectations for improving operating margins and finding a successor for the firms CEO, Raymond Chip Mason.
Protecting the net asset values of those WAMCO money-market funds could saddle Legg Mason with a loss of less than $300 million, although theres a remote possibility of a more severe loss in excess of $1 billion, according to a news release from Moodys.
The rating agency said progress on improving investment performance and profit margins, clearing up the SIV uncertainties and implementing a successful CEO transition would return Leggs ratings outlook to stable, while losses in excess of $500 million, two or three consecutive quarters of material long-term net outflows and leverage exceeding two times the firms total debt/EBITDA would likely lead to a downgrade.
For now, Moodys said it has affirmed the A2 senior unsecured debt rating it announced on Sept. 21, 2006, when it upgraded Legg Masons rating from A3.
In an e-mailed statement, Legg Mason spokeswoman Mary Athridge said: Legg Mason has a strong balance sheet and we have sufficient access to liquidity to work through the current issues that are affecting many money-market fund providers. The NAV across all of our money-market funds is stable, the liquidity in the funds is sufficient, and we believe current market conditions should not affect the NAV going forward.