NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' long-term ratings and withdrawn the 'F1' short-term ratings assigned to the following Variable Rate Demand Preferred Shares (VRDP Shares) issued by seven municipal closed-end funds managed by BlackRock Advisors, LLC (the Funds):
BlackRock Municipal Income Investment Trust (NYSE: BBF)
--VRDP Shares, $34,200,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
BlackRock New York Municipal Income Trust II (NYSE MKT: BFY)
--VRDP Shares, $44,400,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
BlackRock Municipal Bond Investment Trust (NYSE: BIE)
--VRDP Shares, $17,800,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
BlackRock New York Municipal Bond Trust (NYSE: BQH)
--VRDP Shares, $22,100,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
BlackRock New York Municipal Income Quality Trust (NYSE: BSE)
--VRDP Shares, $40,500,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
BlackRock Muni New York Intermediate Duration Fund, Inc. (NYSE: MNE)
--VRDP Shares, $29,600,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
BlackRock MuniYield Quality Fund, Inc. (NYSE: MQY)
--VRDP Shares, $176,600,000 of Series W-7, due Oct. 2041, with a liquidation preference of $100,000 per share, long-term rating affirmed at 'AAA', short-term rating withdrawn.
Fitch has withdrawn the short-term ratings following the Oct. 22, 2015 commencement of the Special Rate Period on the VRDP Shares issued by the seven Funds, which will be in effect until April 18, 2018. During this time, Barclays Bank PLC (Barclays) will remain the liquidity provider. However, during the Special Rate Period the VRDP Shares will not be subject to optional or mandatory tender events and will not be remarketed by a remarketing agent pursuant to such events. The short-term rating is withdrawn because it is no longer considered analytically meaningful.
KEY RATING DRIVERS
The 'AAA' long-term ratings of the VRDP Shares primarily reflect:
--Sufficient asset coverage provided to the VRDP Shares as calculated per the Funds' over-collateralization (OC) tests;
--The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the Funds' operations;
--The capabilities of BlackRock as investment advisor.
Prior to the conclusion of the Special Rate Periods on April 18, 2018, holder(s) of VRDP Shares and the Funds may mutually elect to extend the Special Rate Period. However, if the Special Rate Period is not extended, the VRDP Shares will revert to remarketable securities available for purchase by qualified third party investors. At that point, the VRDP Shares are expected to benefit from an unconditional and irrevocable purchase obligation by a liquidity provider upon optional or mandatory tender events, similar to other Fitch-rated VRDP Shares issued by BlackRock closed-end funds.
If the Special Rate Period is not extended, Fitch would expect to assign a short-term rating to the VRDP Shares based on the rating of the liquidity provider, which prior to the commencement of the Special Rate Period was Barclays, ('A/F1', Outlook Stable). However, any designated liquidity provider or its rating may be subject to change in the future, which could result in a change to Fitch's short-term rating on the VRDP Shares.
The Funds are non-diversified, closed-end funds, registered under the Investment Company Act of 1940. Each Fund invests a significant portion of its total net assets in municipal bond securities rated at least investment grade. Each Fund also invests a significant portion of its total net assets in securities the interest of which is exempt from both federal and applicable state income taxes.
As of Sept. 30, 2015, effective leverage ratios for the seven Funds ranged from 35% to 39%. The Funds' leverage includes both tender option bonds (TOBs) and the VRDP Shares.
As of Sept. 30, 2015, each Fund's asset coverage ratio for the VRDP Shares, as calculated in accordance with the 'AAA' guidelines for Fitch total and net OC 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 VRDP Shares.
As of Sept. 30, 2015, the Funds' asset coverage ratios for the above noted VRDP Shares, as calculated in accordance with the Investment Company Act of 1940, were in excess of the minimum asset coverage threshold of 225% currently set by the terms of the VRDP Shares.
The Funds' governing documents also require the Funds to maintain Effective Leverage Ratios (the calculation of which includes both preferred shares and floating-rate certificates of tender option bonds) below 45% (or 46% if the increase in the ratio is due exclusively to asset market value volatility). The Effective Leverage Ratios of the seven Funds are currently below 45%.
In the event of breaches of any of the above thresholds, the Funds are required to restore compliance per structural protections described below.
Compliance with the Fitch OC, asset coverage and effective leverage thresholds is tested periodically. The Funds' investment advisor 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 the Fitch OC tests the total market value exposure (i.e. valuation, cure and redemption) is within Fitch's 60 business day guideline. For the asset coverage test, the exposure period slightly exceeds Fitch's guideline, however Fitch does not deem this significant due to the Funds' compliance with of the Fitch OC tests which are based on Fitch guidelines.
In the case of an effective leverage breach for Termed-out VRDP Shares (those under a Special Rate Period), the Liquidity Provider has the option to institute actions to require the Fund to remedy the breach pursuant to a covenant with the liquidity provider. An effective leverage breach for remarketable VRDP Shares, would be a breach of the fee agreement with the liquidity provider.
Fitch performed various stress tests on the Funds to assess the strength of the structural protections available to the VRDP Shares compared to the stresses outlined in Fitch's closed-end fund rating criteria. These tests included determining various 'worst case' scenarios where the Funds' leverage and portfolio composition migrated to the outer limits of the Funds' operating and investment guidelines.
Only under remote circumstances, such as increasing the Funds' issuer concentrations, while simultaneously migrating the portfolios to a mix of 80% long-term 'BBB' bonds and 20% high yield bonds, did the asset coverage available to the VRDP Shares fall below the 'AAA' threshold, and instead passed at an 'AA' rating level.
Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views the Funds' permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.
THE FUND ADVISOR
BlackRock Advisors, LLC, a subsidiary of BlackRock, Inc., is the advisor to the Funds, responsible for the overall investment strategies and their implementation. BlackRock, Inc. and its affiliates had approximately $4.7 trillion of assets under management as of June 30, 2015.
The ratings assigned to the VRDP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the Funds, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.
The Funds have the ability to assume economic leverage through derivative transactions which may not be captured by the Funds' Minimum Asset Coverage test or Effective Leverage Ratio. The Funds do not currently engage in speculative derivative activities and Fitch's analysis assumes the Funds do not envision engaging in material amounts of such activity in the future. Any material derivative exposures in the future could have potential negative rating implications if it adversely affects asset coverage available to rated VRDP Shares.
For additional information about Fitch's 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'.
Additional information is available on www.fitchratings.com
The sources of information used to assess this rating were the public domain and BlackRock Advisors, LLC.
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