NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' ratings assigned to the senior secured notes (notes) and 'AA' ratings assigned to the mandatory redeemable preferred shares (MRPS) issued by the Tortoise Energy Infrastructure Corp. (NYSE MKT: TYG), Tortoise MLP Fund, Inc. (NYSE MKT: NTG) and Tortoise Pipeline & Energy Fund, Inc. (NYSE MKT: TTP). A complete list of the associated ratings follows at the end of this press release.
KEY RATING DRIVERS
The rating affirmations reflect:
--Sufficient asset coverage provided to senior notes and MRPS as calculated per the funds' 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 funds' operations;
--The capabilities of Tortoise Capital Advisors, LLC as investment advisor.
TYG, NTG and TTP are non-diversified, closed-end management investment companies with the goal of obtaining a high level of total return with an emphasis on current distributions. TYG and NTG invest the majority of their portfolios in equity securities of publicly-traded Master Limited Partnerships (MLP) and their affiliates in the energy infrastructure sector. These companies gather, transport, process, store, distribute or market natural gas, natural gas liquids, coal, crude oil, refined petroleum products or other natural resources, or explore, develop, manage or produce such commodities. TTP invests primarily in equity securities of pipeline companies that transport natural gas, natural gas liquids (NGLs), crude oil and refined products and, to a lesser extent, in other energy infrastructure companies.
TYG manages a portfolio of approximately $2.5 billion in assets and had leverage of $714 million as of Oct. 31, 2016. The total leverage ratio is approximately 28%. Leverage consists of approximately $106.5 million in bank borrowings, $442.5 million in Fitch-rated senior notes (pari passu to the bank borrowings), and $165 million in junior Fitch-rated MRPS.
NTG manages a portfolio of approximately $1.5 billion in assets and utilizes $448.8 million in leverage as of Oct. 31, 2016. The total leverage ratio is approximately 30%. Pro-forma leverage consists of approximately $54.8 million in bank borrowings, $284 million in Fitch-rated senior notes (pari-passu to the bank borrowings), and $110 million in junior Fitch-rated MRPS.
TTP manages a portfolio of approximately $288 million in assets and utilizes approximately $65.1 million in leverage as of Oct. 31, 2016. The total leverage ratio is approximately 22%. Leverage consists of $15.1 million in bank borrowings, $34 million in Fitch-rated senior notes (pari-passu to the bank borrowings), and $16 million in junior Fitch-rated MRPS.
The funds' 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 senior notes and the 'AA' rating guidelines for the MRPS, outlined in Fitch's closed-end fund criteria, were in excess of 100%, which is the minimum asset coverage required by the funds' governing documents.
The Fitch OC tests calculate asset coverage by applying haircuts to portfolio holdings based on expected volatility and diversification of the assets and measuring their ability to cover both on and off-balance sheet liabilities at the stress level that corresponds to the assigned rating.
The funds' asset coverage ratios for the senior notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act) at current market values, were in excess of 300%. The funds' pro forma asset coverage ratio for total leverage, including the MRPS, as calculated in accordance with the 1940 Act also at current market values, were in excess of 225%.
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 senior notes the funds are required to deliver notice to the note purchasers. The funds' managers are 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) within a pre-specified time period.
Failure to cure an asset coverage breach as described above is an event of default under the terms of the notes. The funds must then deliver a notice to the senior note purchasers and a majority vote of note purchasers may then declare all the notes then outstanding to be immediately due and payable. The assigned ratings assume that senior noteholders would declare the notes due and payable if the fund fails to cure an asset coverage breach.
The funds are 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 Test or Fitch OC Test decline below their minimum threshold amounts (as tested weekly) the funds are required to deliver notice to the MRPS purchasers.
The funds' managers are required to cure the breach by altering the composition of the portfolios 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 Asset Coverage Test breaches) within a pre-specified time period.
The funds have entered into credit agreements with several lenders. The rights of lenders to receive principal and interest payments on borrowings under the agreement are senior to the rights of the MRPS holders of the funds to receive payment of dividends and redemptions.
Under the credit agreements, the funds may not be permitted to redeem MRPS or make dividend payments unless at such time no event of default or other circumstance exists under the credit agreement that would limit or block redemption payments.
Tortoise, a wholly owned subsidiary of Tortoise Holdings, LLC, is each fund's investment adviser, responsible for each fund's overall investment strategy and its implementation. The advisor was formed in October 2002 and, as of Oct. 31, 2016 it had approximately $15 billion in assets under management. Montage Asset Management, LLC, a wholly-owned entity of Mariner Holdings, LLC owns approximately 61% of Tortoise Holdings, LLC, with the remaining interest held by certain senior Tortoise employees.
The ratings are 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 funds 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 trigger a downgrade of the ratings.
Fitch's rating on the MRPS could be negatively affected by material changes in the portfolios' composition, or changes in the credit agreement terms that increases the likelihood that a MRPS dividend or redemption payment could be delayed.
The ratings may also be sensitive to material changes in the credit quality or market risk profile of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause a downgraded of the ratings.
Fitch affirms the following ratings:
Tortoise Energy Infrastructure Corporation (TYG):
--$10,000,000 Series AA senior notes 3.48% due on June 14, 2025 at 'AAA';
--$12,000,000 Series BB senior notes 2.75% due on Sept. 27, 2017 at 'AAA';
--$15,000,000 Series CC senior notes 3.48% due on Sept. 27, 2019 at 'AAA';
--$13,000,000 Series DD senior notes 4.21% due on Sept. 27, 2022 at 'AAA';
--$10,000,000 Series FF senior notes 4.16% due on Nov. 20, 2023 at 'AAA';
--$30,000,000 Series G senior notes 5.85% due on Dec. 21, 2016 at 'AAA';
--$10,000,000 Series I senior notes 4.35% due on May 12, 2018 at 'AAA';
--$10,000,000 Series II senior notes 3.22% due on Dec. 18, 2022 at 'AAA';
--$15,000,000 Series J senior notes 3.30% due on Dec. 19, 2019 at 'AAA';
--$20,000,000 Series JJ senior notes 3.34% due on Dec. 18, 2023 at 'AAA';
--$10,000,000 Series K senior notes 3.87% due on Dec. 19, 2022 at 'AAA';
--$10,000,000 Series KK senior notes 3.53% due on Dec. 18, 2025 at 'AAA';
--$20,000,000 Series L senior notes 3.99% due on Dec. 19, 2024 at 'AAA';
--$20,000,000 Series LL senior notes 2.06% due on June 14, 2020 at 'AAA';
--$13,000,000 Series M senior notes 2.75% due on Sept. 27, 2017 at 'AAA';
--$30,000,000 Series MM senior notes 2.11% due on June 14, 2025 at 'AAA';
--$10,000,000 Series N senior notes 3.15% due on Sept. 27, 2018 at 'AAA';
--$30,000,000 Series NN senior notes 3.20% due on June 14, 2025 at 'AAA';
--$15,000,000 Series O senior notes 3.78% due on Sept. 27, 2020 at 'AAA';
--$30,000,000 Series OO senior notes 3.27% due on April 9, 2026 at 'AAA';
--$12,000,000 Series P senior notes 4.39% due on Sept. 27, 2023 at 'AAA';
--$25,000,000 Series R senior notes 3.77% due on Jan. 22, 2022 at 'AAA';
--$10,000,000 Series S senior notes 3.99% due on Jan. 22, 2023 at 'AAA';
--$25,000,000 Series T senior notes 4.16% due on Jan. 22, 2024 at 'AAA';
--$12,500,000 Series X senior notes 4.55% due on June 15, 2018 at 'AAA';
--$12,500,000 Series Y senior notes 2.77% due on June 14, 2020 at 'AAA';
--$12,500,000 Series Z senior notes 2.98% due on June 14, 2021 at 'AAA';
--$85,000,000 Series D MRPS 4.01% due on Dec. 17, 2021 at 'AA';
--$80,000,000 Series E MRPS 4.34% due on Dec. 17, 2024 at 'AA'.
Tortoise MLP Fund, Inc. (NTG):
--$57,000,000 Series C senior notes 3.73% due on Dec. 15, 2017 at 'AAA';
--$112,000,000 Series D senior notes 4.29% due on Dec. 15, 2020 at 'AAA';
--$10,000,000 Series G senior notes 4.35% due on May 12, 2018 at 'AAA';
--$10,000,000 Series I senior notes 2.77% due on April 17, 2018 at 'AAA';
--$30,000,000 Series J senior notes 3.72% due on April 17, 2021 at 'AAA';
--$35,000,000 Series K senior notes 2.13% due on Sept. 9, 2019 at 'AAA';
--$20,000,000 Series L senior notes 2.33% due on April 17, 2021 at 'AAA';
--$10,000,000 Series M senior notes 3.06% due on April 17, 2021 at 'AAA';
--$65,000,000 Series B MRPS 4.33% due on Dec. 15, 2017 at 'AA';
--$5,000,000 Series C MRPS 3.73% due on Dec. 8, 2020 at 'AA';
--$40,000,000 Series D MRPS 4.19% due on Dec. 8, 2022 at 'AA'.
Tortoise Pipeline & Energy Fund, Inc. (TTP):
--$6,000,000 Series C senior notes 3.49% due on Dec. 15, 2018 at 'AAA';
--$16,000,000 Series D senior notes 4.08% due on Dec. 15, 2021 at 'AAA';
--$6,000,000 Series F senior notes 3.01% due on Dec. 12, 2020 at 'AAA';
--$6,000,000 Series G senior notes 1.90% due on Dec. 12, 2022 at 'AAA';
--$16,000,000 Series A MRPS 4.29% due on Dec. 15, 2018 at 'AA'.
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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The sources of information used to assess this rating were the public domain and Tortoise Capital Advisors.
Additional information is available on www.fitchratings.com
Rating Closed-End Funds and Market Value Structures (pub. 09 Sep 2016)
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