NEW YORK--(BUSINESS WIRE)--Fitch Ratings has confirmed the 'AAA' long-term ratings of Variable Rate Muni Term Preferred Shares (VMTP shares) issued by two municipal closed-end funds (CEFs) managed by Invesco Advisers, Inc. (NYSE:IVZ) following amendments to the funds' operating documents extending maturities from December 2015 to
Fitch takes the following rating actions:
-- Invesco Quality Municipal Income Trust
(NYSE: IQI) $213,900,000 of VMTP Shares, due Dec. 1, 2018, confirmed at 'AAA';
-- Invesco Municipal Trust (NYSE: VKQ)
$262,800,000 of VMTP Shares, due Dec. 1, 2018, confirmed at 'AAA'.
KEY RATING DRIVERS
The rating confirmations primarily reflect:
--The maturity extensions of all funds do not negatively impact asset coverage available to the rated preferred shares;
--Sufficient asset coverage provided to the VMTP shares as calculated per the funds' overcollateralization (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 Invesco Advisers, Inc. as investment advisor.
As of April 30, 2015, the funds' asset coverage ratios, as calculated in accordance with the Fitch total and net OC tests per the 'AAA' rating guidelines outlined in Fitch's criteria, were in excess of 100%, which is the minimum threshold required under the VMTP Shares' transactional documents.
The Fitch OC tests calculate standardized asset coverage by applying haircuts to portfolio holdings based on riskiness 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.
As of the same date, each fund's asset coverage ratio for the VMTP
Shares, as calculated in accordance with the Investment Company Act of
1940, was in excess of the minimum asset coverage threshold of 225% required by the funds' governing documents (Preferred Shares Asset Coverage Test) and the funds' pro forma effective leverage ratios were below the 45% maximum leverage ratio allowed by the funds' governing documents (Effective Leverage Test).
Compliance with the Fitch OC, Preferred Shares Asset Coverage and Effective Leverage Tests is tested periodically. In the event of a breach, funds' governing documents will require the funds to reduce leverage in order to restore compliance with the test(s) breaching the required threshold(s).
The total market value exposure periods (i.e. the pre-specified time period allotted for valuation, cure and redemption in the event of a breach) are within the 60-business-day Fitch criteria guidelines.
The funds are closed-end management investment companies regulated by the Investment Company Act of 1940. The funds currently invest primarily in investment-grade quality municipal bonds.
Invesco Advisers, Inc., an indirect, wholly owned subsidiary of
Invesco, Ltd., is the funds' adviser, responsible for the funds' overall investment strategies and their implementation. Invesco Ltd. had approximately $798.3 billion of assets under management as of
March 31, 2015.
The ratings assigned to the preferred 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' Preferred Shares Asset Coverage test or Effective Leverage Ratio.
The funds currently do not engage in derivative activities for speculative purposes and do not envision engaging in such activity in the future. Material derivative exposure in the future could have potential negative rating implications if it adversely affects asset coverage available to rated preferred shares.
Additional information is available on www.fitchratings.com