CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' rating assigned to auction market preferred shares (AMPS) issued by the following leveraged U.S. closed-end fund backed primarily by convertible securities:
Advent Claymore Convertible Securities and Income Fund (NYSE: AVK)
--$262,000,000 of AMPS consisting of series M7, T28, W7, W28, Th28 and F7, each with a liquidation preference of $25,000 per share, affirmed at 'AAA'.
The main drivers of the rating affirmation are sufficient asset coverage relative to Fitch's published criteria, structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the fund's operations and the capabilities of Advent Capital Management, LLC (Advent) as investment advisor. Fitch's rating on the AMPS addresses only timely payment of interest and sufficiency of the AMPS' asset coverage in accordance with the governing documents, but not the AMPS liquidity in the secondary market.
As of March 31, 2011, AVK's total assets were approximately $743 million. The fund's total leverage was approximately $262 million or 35% of total assets, consisting entirely of rated AMPS. Fitch's criteria also consider the fund's use of economic leverage in the form of derivatives, if applicable.
At the time of the rating affirmation, the fund's asset coverage ratios for preferred shares, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), was in excess of 200%, which is the minimum asset coverage ratio required by the 1940 Act for total leverage. Also, at the time of these affirmations, the fund's asset coverage ratio, as calculated in accordance with the Fitch total and net overcollateralization (OC) tests per the 'AAA' rating guidelines outlined in Fitch's applicable criteria was in excess of 100%, which is the minimum asset coverage amount deemed consistent with an 'AAA' rating.
Should the fund's 1940 Act total leverage test decline below its minimum threshold amount, the governing documents' cure provisions will require the fund to cure the test by de-leveraging the affected liabilities in a sufficient amount to restore compliance. Should the fund's Fitch total or net OC tests decline below their minimum threshold amounts, the governing documents' mandatory redemption provisions will require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage test(s). The maximum period during which AMPS investors are exposed to collateral price declines following a breach in the Fitch total and net OC tests before such tests are cure is up to 29 business days.
AVK is a diversified closed-end management investment company registered under the Investment Company Act of 1940, as amended, that commenced investment operations in April 2003. The fund's investment objective is to provide total return through a combination of capital appreciation and current income. The fund pursues its objective by investing at least 80% of its managed assets in a diversified portfolio of convertible securities and non-convertible income securities.
As of March 31, 2011, AVK's portfolio on a market value basis was comprised of 71% convertible securities, 21% non-convertible income securities, 4% cash and short-term investments, 2% preferred stock, and 2% warrants issued by large financial institutions. From an industry diversification perspective, AVK's largest concentration was in banking, finance and insurance, at approximately 22% of total fund assets. No single issuer represented greater than 2% of the portfolio.
Advent Capital Management, LLC serves as AVK's investment adviser and managed over $6 billion in assets as of April 30, 2011. Advent specializes in global convertible, high-yield, and equity securities investing across its main business lines of long-only strategies, hedge funds, and closed-end funds. Guggenheim Funds Distributors, Inc. (Guggenheim Funds), serves as servicing agent to AVK. Guggenheim Funds and its associated entities are subsidiaries of Guggenheim Partners, LLC, a global, diversified financial services firm with more than $100 billion in assets under supervision as of April 30, 2011. Guggenheim Funds and Advent are registered investment advisors with the SEC.
The rating may be sensitive to material changes in the credit quality or market risk profiles of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating 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.
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess these ratings were the public domain, and Advent Capital Management, LLC.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria', Aug. 17, 2009;
--'Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations', March 18, 2010.
Applicable Criteria and Related Research:
Closed-End Fund Debt and Preferred Stock Rating Criteria
Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations