NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' Long-term rating to the series 2019 Institutional MuniFund Term Preferred Shares (iMTP Shares) issued by the following closed-end funds managed by Eaton Vance Management (Eaton Vance):
--Eaton Vance California Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance Massachusetts Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance Michigan Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance New Jersey Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance New York Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance Ohio Municipal Income Trust, Series 2019 iMTP Shares;
--Eaton Vance Pennsylvania Municipal Income Trust, Series 2019 iMTP Shares.
The iMTP Shares were issued to refinance the funds' auction preferred shares (APS) that were optionally tendered as a result of the tender offer EVM announced Oct. 5, 2015.
KEY RATING DRIVERS
The 'AAA' long-term ratings of the iMTP Shares primarily reflects:
--Sufficient asset coverage provided to the iMTP Shares as calculated under Fitch 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 fund operations;
--The capabilities of EVM as investment adviser.
As of Feb. 26, 2015, the funds had the following mix of preferred shares accounting for the refinancing of the APS with iMTP:
--Eaton Vance California Municipal Income Trust, iMTP of $46,975,000, APS of $3,000,000;
--Eaton Vance Massachusetts Municipal Income Trust, iMTP of $16,800,000, APS of $3,250,000;
--Eaton Vance Michigan Municipal Income Trust, iMTP of $16,850,000, APS of $650,000;
--Eaton Vance Municipal Income Trust, iMTP of $68,000,000, APS of $14,775,000;
--Eaton Vance New Jersey Municipal Income Trust, iMTP of $29,000,000, APS of $4,425,000;
--Eaton Vance New York Municipal Income Trust, iMTP of $29,600,000, APS of $4,125,000;
--Eaton Vance Ohio Municipal Income Trust, iMTP of $18,400,000, APS of $4,325,000;
--Eaton Vance Pennsylvania Municipal Income Trust, iMTP of $16,975,000, APS of $4,200,000.
All funds except Eaton Vance Michigan Municipal Income Trust have tender option bond positions (TOBs) Fitch considers leverage when calculating the Fitch OC Tests.
As of Feb. 26, 2015, the funds' total pro forma asset coverage ratio for the above noted iMTP Shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage threshold of 225% currently set by the terms of the preferred shares.
As of the same date, the pro forma effective leverage ratio for the funds was between 34% and 42%. In all cases the pro forma effective leverage ratios are below the 45% maximum effective leverage ratio allowed by the governing documents of the iMTP Shares.
In the event of asset coverage declines, the governing documents of the iMTP Shares require the funds to reduce leverage in order to restore compliance with the applicable asset coverage test. Compliance with both the minimum asset coverage threshold and the 45% maximum effective leverage ratio threshold are tested daily.
Failure to cure a breach of the minimum asset coverage threshold by the allotted cure date results in mandatory redemption of sufficient iMTP Shares to restore compliance. To facilitate redemption the funds will deposit sufficient funds with a third-party custodian.
Failure to cure a breach of the 45% maximum effective leverage ratio by the allotted cure date requires the funds to restore compliance by depositing enough funds with a third-party custodian to redeem a sufficient number of iMTP Shares and / or reducing the amount of TOBs the funds have outstanding in an amount sufficient to restore compliance.
For the minimum asset coverage and maximum effective leverage ratio tests, the total market value exposure period (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 guidelines provided in Fitch's criteria.
Fitch performed various stress tests to assess the strength of the structural protections available to the preferred shares compared to the stresses outlined in Fitch's closed-end fund rating criteria. These tests included determining various 'worst case' scenarios where leverage and portfolio composition migrated to the outer limits of its operating and investment guidelines.
Only under remote circumstances, such as increasing issuer concentration, while simultaneously migrating the portfolios to a mix of 80% long-term 'BBB' 10+ years to maturity bonds and 20% high yield bonds, did the asset coverage available to the iMTP Shares fall below the 'AAA' threshold, and instead passed at a 'AA' rating level.
Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.
The funds are closed-end management investment companies regulated by the Investment Company Act of 1940. The funds primarily invest in municipal bonds, with seven focused on investments within a single state and one is a national fund.
The investment advisor is EVM, a subsidiary of Eaton Vance Corp. EVM is responsible for the funds' overall investment strategies and their implementation. EVM and its affiliates had approximately $302.6 billion of assets under management as of January 31, 2016.
The ratings assigned to the iMTP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause a ratings downgrade.
The funds have the ability to assume economic leverage through derivative transactions which may not be captured by the minimum asset coverage test or effective leverage ratio. The funds do not currently engage in derivative activity and do not envision engaging in material amounts of such activity in the future. In fact, such activity is limited by the investment guidelines of the funds and could run counter to investment objectives of achieving tax-exempt income. Material derivative exposures in the future could have potential negative rating implications if it adversely affects asset coverage available to rated preferred 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 EVM.
Rating Closed-End Fund Debt and Preferred Stock (pub. 16 Sep 2015)
Dodd-Frank Rating Information Disclosure Form