CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AA' long-term ratings assigned to the following Variable Rate Municipal Term Preferred Shares (VMTP shares) issued by three closed-end funds managed by Neuberger Berman Management LLC (the Advisor):
Neuberger Berman Intermediate Municipal Fund Inc. (NYSE MKT: NBH)
--$179,400,000 of Series A VMTP at 'AA'
Neuberger Berman New York Intermediate Municipal Fund Inc. (NYSE MKT: NBO)
--$48,300,000 of Series A VMTP at 'AA'
Neuberger Berman California Intermediate Municipal Fund Inc. (NYSE MKT: NBW)
--$59,000,000 of Series A VMTP at 'AA'
KEY RATING DRIVERS
The 'AA' long-term ratings primarily reflect:
--Sufficient asset coverage provided to the VMTP shares as calculated per the fund's over-collateralization (OC) 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 Neuberger Berman as investment manager.
FUND PROFILES
All three funds are closed-end management investment companies regulated by the Investment Company Act of 1940. NBH's investment objective is to provide common stockholders a high level of current income exempt from federal income tax. NBO's investment objective is to provide common stockholders a high level of current income exempt from federal income tax and New York State and New York City personal income taxes. NBW's investment objective is to provide common stockholders a high level of current income exempt from federal income tax and California personal income tax. All three funds may invest up to 20% in below investment grade and/or unrated securities.
FUND LEVERAGE
As of March 31, 2015, NBH had $484.9 million in assets. Total leverage consisted of $179.4 million of VMTP Shares. The effective leverage ratio as of this date was 37.0%.
As of March 31, 2015, NBO had $122.4 million in assets. Total leverage consisted of $48.3 million of VMTP Shares. The effective leverage ratio as of this date was 39.5%.
As of March 31, 2015, NBW had $145.6 million in assets. Total leverage consisted of $59.0 million of VMTP Shares. The effective leverage ratio as of this date was 40.5%.
Asset coverage and structural protections for the preferred shares are described below.
ASSET COVERAGE
As of May 29, 2015, the funds' asset coverage ratios for the VMTP shares, as calculated in accordance with the 'AA' Fitch total and net over-collateralization tests (Fitch OC Tests) outlined in Fitch's criteria, was in excess of 100%. This is the minimum threshold required under the terms of the VMTP shares.
The test calculates standardized asset coverage by applying haircuts to portfolio holdings based on perceived riskiness and diversification of the assets and measuring its ability to cover both on and off-balance sheet liabilities, if any, at the assigned 'AA' stress level.
Also as of May 29, 2015, the asset coverage ratio for each fund, as calculated in accordance with the Investment Company Act of 1940 (Asset Coverage Test) at current market value, was in excess 225%. This is also the minimum asset coverage threshold required under the terms of the VMTP shares.
Finally, as of May 29, 2015, the effective leverage ratio (Effective Leverage Test) also calculated at current market value, was below 50%. This is the maximum leverage threshold allowed under the terms of the preferred shares (51% if the increase in the ratio is due exclusively to asset market value volatility).
In the event of breaches to any of the above thresholds, the funds are required to restore compliance per structural protections described below.
STRUCTURAL PROTECTIONS
Compliance with the Fitch OC, Asset Coverage and Effective Leverage thresholds is tested periodically. The fund manager is expected to cure any breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC breaches), or by reducing leverage in a sufficient amount (for all other breaches) within a pre-specified time period.
For Fitch OC, Asset Coverage and Effective Leverage Tests, the maximum market value exposure (i.e. valuation, cure and redemption) that preferred shareholders would be exposed to before cure or redemption is approximately 60, 45 and nine business days, respectively.
THE ADVISOR
Neuberger Berman Management LLC is an indirect subsidiary of Neuberger Berman Group LLC, which is a private, independent, employee-controlled investment manager founded in 1939. The firm has more than 1800 employees and managed $251 billion in assets across equities, fixed income and other alternative investments as of March 31, 2015.
RATING SENSITIVITIES
The ratings assigned to the VMTP shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.
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The sources of information used to assess this rating were the public domain and Neuberger Berman Management LLC.
Applicable Criteria
Rating Closed-End Fund Debt and Preferred Stock (pub. 04 Sep 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528
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