NEW YORK--()--Fitch Ratings assigns an 'AAA' rating to new remarketable variable rate muni term preferred shares (RVMTP Shares) issued by BlackRock Municipal Target Term Trust (NYSE: BTT).
BlackRock Municipal Target Term Trust (NYSE: BTT)
--Up to $750,000,000 of Series W-7 RVMTP Shares, with a liquidation preference of $5,000,000 per share, due Dec. 31, 2030.
The fund's first issuance of the RVMTP Shares has closed today Thursday Jan. 10, 2013. The RVMTP Shares are being privately placed with one or more qualified institutional buyers via a 144a offering. Proceeds will be used by the fund to purchase additional assets in line with the strategy and guidelines of the fund prospectus. Fitch expects the issuances of RVMTP Shares to be executed in one or more transactions during the course of several weeks following this closing. Total issuance size may be equal to or smaller than $750,000,000 depending on market conditions, investor demand, and other factors.
KEY RATING DRIVERS
The 'AAA' long-term rating primarily reflects:
--Sufficient asset coverage provided to the preferred shares as calculated per the fund's asset coverage tests;
--The structural protections afforded by mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of BlackRock Advisors, LLC. as investment advisor.
The fund is a closed-end management investment company regulated by the Investment Company Act of 1940. The fund's investment objectives are to provide current income that is exempt from regular federal income tax and to return $25.00 per common share to holders of common shares on or about Dec. 31, 2030.
Under normal market conditions, the fund expects to invest at least 80% of its total assets in a portfolio of municipal obligations rated at least 'BBB' by Fitch or equivalent or, if unrated, are considered by the fund's investment adviser to be of comparable quality.
As of Dec. 31, 2012, the fund's managed assets were $2,162 million, when including the economic ownership of municipal bonds held through tender option bond conduits but excluding the effect of expected RVMTP Shares issuance. As of the same date, leverage in the form of floating rate notes of tender option bonds comprised $463 million, or 21.5% of managed assets. Following the issuance of RVMTP Shares, total leverage is expected to range from 35% to 40%, but at all times will be limited by the fund's 45% effective leverage ratio covenant (see below).
As of end of December 2012, the fund's pro forma asset coverage ratio, as calculated in accordance with the Fitch total and net over-collateralization tests per the 'AAA' rating guidelines outlined in Fitch's criteria, was in excess of 100%, which is the minimum threshold required under the RVMTP Shares' transactional documents.
As of the same date, the fund's asset coverage ratio for RVMTP Shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage threshold of 225% as currently set by corresponding transactional documents.
The fund has also covenanted to maintain an effective leverage ratio for both the preferred shares and floating-rate certificates of tender option bonds below 45%. The fund's Effective Leverage Ratio is anticipated to remain below 45% following the issuance of RVMTP Shares.
In the event of asset coverage decline, the RVMTP Shares' transactional documents require the fund to reduce leverage in order to restore compliance with the particular test(s) breaching the required threshold(s).
BlackRock Advisors, LLC, a subsidiary of BlackRock, Inc., is the advisor to the fund, responsible for the overall investment strategies and their implementation. BlackRock, Inc. and its affiliates had approximately $3.673 trillion of assets under management as of Sept. 30, 2012.
The rating assigned to the RVMTP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality, portfolio diversification or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could result in a downgrade by Fitch.
For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's web site at www.fitchratings.com.
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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 and BlackRock Advisors, LLC.
Applicable Criteria and Related Research:
--'2013 Outlook: Closed-End Funds' (Dec. 14, 2012);
--'Municipal CEF Leverage Continues to Evolve' (Nov. 27, 2012);
--'Municipal Closed-End Funds Diversify Funding and Moderate Rollover Risk' (Oct. 11, 2012);
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2012);
--'Municipal CEFs Refinance Pre-Crisis ARPS' (May 3, 2012);
--'Primer: CEF Variable-Rate Demand Preferred Shares' (Oct. 27, 2011).
Applicable Criteria and Related Research:
Municipal CEF Leverage Continues to Evolve
Municipal Closed-End Funds Diversify Funding and Moderate Rollover Risk
Rating Closed-End Fund Debt and Preferred Stock
Municipal CEFs Refinance Pre-Crisis ARPS
Primer: CEF Variable-Rate Demand Preferred Shares (Closed-End Fund VRDPs Target Short-Term, Money Market Investors)