Fitch Affirms Notes Issued by 11 Santander Puerto Rico CEFs

NEW YORK--()--Fitch Ratings has reviewed and affirmed the ratings assigned to Short-Term Notes series and Medium-Term Notes series issued by 11 Puerto Rico (PR) closed-end funds (CEFs) advised by Santander Asset Management (Puerto Rico). A complete list of rating actions can be found at the end of this release.

KEY RATING DRIVERS

The main drivers for the rating actions are:

--The asset coverage available to each series of notes at the individual, sub-account level;

--The structural protections afforded by mandatory collateral maintenance provisions in the event of asset coverage declines;

--The legal and regulatory parameters that govern the funds' operations;

--The capabilities of Santander Asset Management (Puerto Rico) as investment adviser.

FUND SUMMARY

The funds are corporations organized under the laws of the Commonwealth of PR and are duly registered as non-diversified, closed-end management investment companies under the Puerto Rico Investment Companies Act of 1954. They have not converted to the amended act of 2013. For additional detail, see Fitch's press release titled 'Fitch: Investors Sell Puerto Rico Bonds; PRICA Adds Uncertainty' published February 12, 2014.

The funds normally invest at least 67% of total assets in securities issued by PR entities. These include securities issued by the Commonwealth of PR, PR mortgage-backed and asset-backed securities and corporate obligations and preferred stock of PR entities.

Fund net asset values (NAVs) suffered material price erosion since summer of last year. In fall of 2013, PR bond prices declined on Detroit price contagion and experienced further price decline following the enactment of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (Recovery Act) on June 2014. For additional detail, see Fitch press release titled 'Fitch: Puerto Rico Bonds Decline Following Recovery Act' published on July 11, 2014.

Despite the impact on fund's common stock, credit quality of the Fitch rated notes was not impaired. Fund managers reacted swiftly by reallocating collateral to support the notes and deleveraged when needed, in line with the structural protections described below. Fund leverage ratios averaged at 45% as of end of July.

STRUCTURAL PROTECTIONS

At the time of the ratings, the funds' asset coverage ratios, as calculated in accordance with the Fitch overcollateralization (OC) tests using the asset specific discount factors and the minimum discount factors found in the rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which are the minimum asset coverage amounts deemed consistent with the assigned ratings.

Each fund segregates collateral for medium-term note series and short-term note series separately. The Fitch OC tests calculate asset coverage available to the notes based on the discounted market price loss expectations and diversification of the assets in each segregated collateral account. Should any such asset coverage tests decline below 100% (as tested weekly) and not be cured within the pre-specified timeframe of five business days, the governing documents would require the collateral agent to reduce leverage in a sufficient amount to restore compliance with the applicable asset coverage tests on the final day of the cure period.

THE ADVISOR

Santander Asset Management (Puerto Rico) is the funds' investment advisor and, subject to the supervision of the funds' board of directors, is responsible for the overall investment strategy and implementation. Santander Asset Management (Puerto Rico) is a wholly owned subsidiary of Santander Securities, a subsidiary of Santander Bancorp, and part of Grupo Santander. As part of Grupo Santander, Santander Asset Management (Puerto Rico) is part of the global Santander Asset Management division. As of June 30, 2014, Santander Asset Management (Puerto Rico) managed approximately $3.1 billion in assets.

RATINGS SENSITIVITY

The ratings may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch. Changes in the supply-demand dynamics with respect to invested collateral types may influence Fitch's analytical approach to the liquidity of underlying collateral types. In addition, the amount of leverage assumed by the fund could also influence Fitch's analytical conclusion if such leverage increased the likelihood of a bankruptcy stay with respect to the overall fund.

For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end fund, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.

RATING ACTIONS

Fitch has taken affirmed the following ratings:

First Puerto Rico AAA Target Maturity Fund I

--Medium-Term Notes series at 'AA';

--Short-Term Notes series at 'F1+'.

First Puerto Rico AAA Target Maturity Fund II

--Medium-Term Notes series at 'AA';

--Short-Term Notes series at 'F1+'.

First Puerto Rico Target Maturity Income Opportunities Fund I

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

First Puerto Rico Target Maturity Income Opportunities Fund II

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

First Puerto Rico Tax-Advantaged Target Maturity Fund I

--Medium-Term Notes series at 'AA';

--Short-Term Notes series at 'F1+'.

First Puerto Rico Tax-Advantaged Target Maturity Fund II

--Medium-Term Notes series at 'AA';

--Short-Term Notes series at 'F1+'.

First Puerto Rico Tax-Exempt Fund

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

First Puerto Rico Tax-Exempt Target Maturity Fund II

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

First Puerto Rico Tax-Exempt Target Maturity Fund III

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

First Puerto Rico Tax-Exempt Target Maturity Fund IV

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

First Puerto Rico Tax-Exempt Target Maturity Fund V

--Medium-Term Notes series at 'A';

--Short-Term Notes series at 'F1'.

Additional information is available at 'www.fitchratings.com'. The sources of information used to assess this rating were the public domain and Santander Asset Management (Puerto Rico).

Applicable Criteria and Related Research:

--'Rating Puerto Rico Closed-End Fund Debt and Preferred Stock' (August 2013);

--'Fitch: Chapter 9 Extension Would Be a Positive for Puerto Rico' (August 2014);

--'Fitch: Puerto Rico Bonds Decline Following Recovery Act '(July 2014);

--'Fitch Downgrades Puerto Rico GO, Sales Tax, Retirement System & Water Revenue Bond' (July 2014);

--'Fitch Downgrades Puerto Rico Electric Power Auth's Rev Bonds; Maintains Watch Negative' (June 2014);

--'Puerto Rico Banks: Difficult Operating Environment Constrains Ratings' (May 2014);

--'Fitch: Investors Sell Puerto Rico Bonds; PRICA Adds Uncertainty' (February 2014);

--'Fitch: New Puerto Rico Fund Regulations Modest Credit Positive' (January 2014);

--'Fitch: Rocked Puerto Rico Muni Bonds Hold Tigh't (October 2013).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=846276

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst:
Yuriy Layvand, CFA, +1-212-908-9191
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Ian Rasmussen, +1-212-908-0232
Senior Director
or
Committee Chairperson:
Davie Rodriguez, +1-212-908-0386
Senior Director
or
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Yuriy Layvand, CFA, +1-212-908-9191
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Ian Rasmussen, +1-212-908-0232
Senior Director
or
Committee Chairperson:
Davie Rodriguez, +1-212-908-0386
Senior Director
or
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com