NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the following new series of mandatory redeemable preferred stock (MRPS) issued by Kayne Anderson MLP Investment Company (NYSE Amex: KYN), a non-diversified closed-end fund managed by KA Fund Advisors, LLC. Fitch also affirms the ratings on the fund's existing notes and MRPS as listed at the bottom of this press release.
--$50,000,000 of series G MRPS, due Oct. 1, 2021
The sale of series G MRPS has closed on Sept. 16, 2013, and net proceeds of approximately $49 million from the offering will be used to make new portfolio investments.
KEY RATING DRIVERS
The rating assignments and affirmations reflect:
--Sufficient pro forma asset coverage provided to MRPS and notes 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 KA Fund Advisors, LLC as investment advisor.
As of Aug. 31, 2013, fund's total assets were $5,895 million and total leverage was $1,587 million, or 26.9% of assets. The leverage consisted of $1,175 million in outstanding notes, $113 million drawn on the fund's credit facility and $399 million in MRPS. Incorporating the expected series G MRPS issuance onto the current portfolio would increase the fund leverage to approximately 27.5%.
As of Aug. 31, 2013, the fund's pro forma asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines for the notes and the 'AA' rating guidelines for the MRPS, outlined in Fitch's closed-end fund criteria, were in excess of 100%. These are the minimum asset coverage guideline required by the fund's governing documents, and evaluated as such by Fitch to arrive at the assigned rating levels.
As of Aug. 31, 2013, the fund's asset coverage ratio for the notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), was in excess of 300%. The fund's pro forma asset coverage ratio for total leverage, including the MRPS, as calculated in accordance with the Investment Company Act of 1940, was in excess of 200%. These are the minimum asset coverage ratios required by the 1940 Act and the fund's governing documents.
NOTES STRUCTURAL PROTECTIONS
Should the asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each week), under the terms of the notes the fund is required to deliver notice to the note purchasers within five business days. The fund manager is then expected to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and the 1940 Act test breaches).
Failure to cure an asset coverage breach as described above is an event of default under the terms of the notes. The fund must then deliver a notice within five business days to the note purchasers and a majority vote of note purchasers may then declare all the notes then outstanding to be immediately due and payable. The maximum period that note investors are exposed to market value declines until they can exercise acceleration is 47 calendar days for breaches to the Fitch OC Test and a longer time period for breaches to the notes 1940 Act test.
The fund is also prohibited from paying out a common stock dividend if it fails to cure a breach to the notes' 300% 1940 Act asset coverage test. Fitch views this as an added incentive to cure and deleverage in a timely manner, regardless of acceleration by the notes purchasers.
MRPS STRUCTURAL PROTECTIONS
Should the MRPS asset coverage tests decline below their minimum threshold amounts (as tested weekly) the funds are required to deliver notice to the MRPS purchasers within five days of becoming aware of such fact.
The Fund manager is required to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and 1940 Act asset coverage test breaches). Fund must cure the Fitch OC Test breach within 47 calendar days and a longer time period for the total leverage 1940 Act test.
The fund invests principally in equity securities of energy-related publicly traded master limited partnerships (MLPs). Energy-related MLPs own domestic infrastructure assets that are used in the gathering, processing, transportation, storage, refining and distribution of energy-related commodities. The fund's objective is to obtain high after tax total returns for its shareholders.
KA Fund Advisors, LLC is the fund's investment adviser, responsible for implementing and administering the fund's investment strategy and a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson) a Securities and Exchange Commission-registered investment adviser. As of May 31, 2013, Kayne Anderson and its affiliates managed assets of approximately $22 billion, including over $19 billion in the Energy Sector (of which $15 billion was invested in MLPs and Midstream Companies). Kayne Anderson has invested in MLPs and other midstream energy companies since 1998.
CONCURRENT RATING AFFIRMATIONS
Fitch affirms the following ratings:
--$60,000,000 series M 4.56% notes due on Nov. 4, 2014 at 'AAA';
--$50,000,000 series N 3-month LIBOR + 185 bps notes due on Nov. 4, 2014 at 'AAA';
--$65,000,000 4.21% Series O Notes due on May 7, 2015 at 'AAA';
--$45,000,000 series P 3-month LIBOR + 160 bps notes due on May 7, 2015 at 'AAA';
--$15,000,000 3.23% series Q notes due on Nov. 9, 2015 at 'AAA';
--$25,000,000 3.73% series R notes due on Nov. 9, 2017 at 'AAA';
--$60,000,000 4.4% series S notes due on Nov. 9, 2020 at 'AAA';
--$40,000,000 4.5% series T notes due on Nov. 9, 2022 at 'AAA';
--$60,000,000 series U 3-month LIBOR + 145 bps notes due on May 26, 2016 at 'AAA';
--$70,000,000 3.71% series V notes due on May 26, 2016 at 'AAA';
--$100,000,000 4.38% series W notes due on May 26, 2018 at 'AAA';
--$14,000,000 2.46% series X notes due on May 3, 2015 at 'AAA';
--$20,000,000 2.91% series Y notes due on May 3, 2017 at 'AAA';
--$15,000,000 3.39% series Z notes due on May 3, 2019 at 'AAA';
--$15,000,000 3.56% series AA notes due on May 3, 2020 at 'AAA';
--$35,000,000 3.77% series BB notes due on May 3, 2021 at 'AAA';
--$76,000,000 3.95% series CC notes due on May 3, 2022 at 'AAA';
--$75,000,000 2.74% series DD notes due April 16, 2019 at 'AAA';
--$50,000,000 3.20% series EE notes due April 16, 2021 at 'AAA';
--$65,000,000 3.57% series FF notes due April 16, 2023 at 'AAA';
--$45,000,000 3.67% series GG notes due April 16, 2025 at 'AAA';
--$175,000,000 series HH 3-month LIBOR + 125 bps Notes due on Aug. 19, 2016 at 'AAA';
--$104,000,000 5.57% series A MRPS due on May 7, 2017 at 'AA';
--$8,000,000 4.53% series B MRPS due on Nov. 9, 2017 at 'AA';
--$42,000,000 5.20% series C MRPS due on Nov. 9, 2020 at 'AA';
--$120,000,000 4.25% series E MRPS due on April 1, 2019 at 'AA';
--$125,000,000 3.50% series F MRPS due on April 15, 2020 at 'AA'.
The rating is based on the terms stipulating mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines. In the case of the rated notes, should the fund fail to cure an asset coverage breach, or the note purchasers not declare the notes due and payable upon an event of default, this may lengthen exposure to market value risk and cause the ratings to be lowered by Fitch.
The ratings may also be sensitive to material changes in the credit quality or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch.
For additional information about Fitch closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.
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Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 14, 2013);
--'Closed-End Funds Weather Rate Rise (Loan Funds Sail through Volatility, Bond Funds Diverge)' (Aug. 23, 2013);
--'Basel III to Affect Taxable Closed- End Funds (Impact Muted by Short Tenor and High Quality of Taxable CEF Bank Loans)' (June 18, 2013);
--'Taxable Closed-End Funds Dashboard' (June 4, 2013);
--'12th Annual Capital Link Forum - Closed-End Fund Leverage Slides' (May 1, 2013).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
Closed-End Funds Weather Rate Rise (Loan Funds Sail through Volatility, Bond Funds Diverge)
Basel III to Affect Taxable Closed- End Funds (Impact Muted by Short Tenor and High Quality of Taxable CEF Bank Loans)
Taxable Closed-End Funds Dashboard
12th Annual Capital Link Forum - Closed-End Fund Leverage Slides