Fitch: Largest MLP Closed-End Funds Offer 'Model' Funding Strategy

NEW YORK--()--The funding strategies of larger closed-end funds (CEFs) investing in master limited partnerships (MLP) may serve as a model for other taxable CEFs, according to a Fitch Ratings report.

MLP CEFs pursue a diversified funding strategy, utilizing bank borrowings for short-term cash needs (9% of leverage on average), balanced with longer-term issuance of senior notes (62% of leverage) and preferred stock (24% of leverage). The full report 'MLP Closed-End Funds: A Capital Structure Case Study' is complementary and may be downloaded at the link below.

Fitch notes that other taxable CEFs are gradually adopting a similar funding strategy, in order to take advantage of higher leverage capacity available with preferred stock (50% maximum vs. 33% with debt), lengthen their liabilities to better match portfolio durations, diversify across investor types, and access longer-term fixed financing to hedge against rising rates.

Fitch rates approximately $9.3 billion of notes and preferred shares issued by US leveraged taxable CEFs, currently in the 'AAA', 'AA' and 'A' categories.

Opt-in to receive Fitch's forthcoming research on CEFs: http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'MLP Closed-End Funds: A Capital Structure Case Study' (Dec. 2013);

--'Capital Link Webcast Slides' (Sept. 2013);

--'Closed-End Funds Weather Rate Rise' (Aug. 2013);

--'Basel III to Affect Taxable Closed-End Funds' (June 2013);

--'Taxable Closed-End Funds Dashboard' (June 2013);

--'Rating Closed-End Fund Debt and Preferred Stock' (Aug 2013).

Applicable Criteria and Related Research: MLP Closed-End Funds: A Capital Structure Case Study

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723839

Capital Link Webcast Slides

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719661

Closed-End Funds Weather Rate Rise (Loan Funds Sail through Volatility, Bond Funds Diverge)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716415

Basel III to Affect Taxable Closed-End Funds (Impact Muted by Short Tenor and High Quality of Taxable CEF Bank Loans)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710198

Taxable Closed-End Funds Dashboard

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709358

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716220

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Contacts

Fitch Ratings
Yuriy Layvand, CFA, +1 212-908-9191
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Michael Swan, +1 212-908-9108
Analyst
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Yuriy Layvand, CFA, +1 212-908-9191
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Michael Swan, +1 212-908-9108
Analyst
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com