NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings assigned to the Variable-Rate Term Preferred Shares (VRTP Shares) issued by Eaton Vance Floating-Rate Income Trust (NYSE: EFT) and Eaton Vance Floating-Rate Income Plus Fund (NYSE: EFF), two closed-end funds managed by Eaton Vance Management. Fitch is withdrawing the ratings as EFF and EFT have chosen to stop participating in the rating process following an amendment to the VRTP by-laws. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings for EFF and EFT.
--EFT, $80,000,000 of Series C-1 VRTP Shares affirmed at 'AA' and withdrawn;
--EFF, $19,000,000 of Series C-1 VRTP Shares affirmed at 'AA' and withdrawn.
The mandatory redemption date of both funds' VRTP shares has been extended to Sept. 30, 2019 following an amendment to the VRTP by-laws.
KEY RATING DRIVERS
The affirmations of EFT and EFF and reflect:
--Sufficient asset coverage relative to Fitch's published criteria;
--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 Eaton Vance Management as the investment advisor.
EFT is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended and commenced operations in June 2004. The fund has the investment objective of providing a high level of current income, with a secondary objective of seeking capital preservation to the extent consistent with its primary goal of high current income. Under normal market conditions, the fund will invest at least 80% of assets in senior loans. The fund may also invest in second-lien loans and high-yield bonds.
EFF is a diversified, closed-end management investment company. The fund's investment objective is providing total return, with an emphasis on income. Under normal market conditions, the fund will invest at least 80% of its total assets in senior loans of domestic and foreign borrowers that are denominated in U.S. dollars and foreign currencies.
The funds may purchase senior loans that may be fully or partially unfunded and the commitments of which the fund is obligated to fulfil at the borrower's discretion.
As of Sept. 30, 2016, the funds invested in foreign currency denominated securities and utilized forward foreign currency exchange contracts to hedge the potential exchange rate risk associated with such investments. Fitch notes that for unhedged positions, exchange rate risk is included as part of Fitch's assessment of the sufficiency of asset coverage available to rated VRTPs.
As of Sept. 30, 2016, EFT had total assets of approximately $928 million and leverage of $326 million or 35% of assets. Leverage consisted of approximately $246 million from a bank credit facility and $80 million of rated VRTP Shares.
As of the same date, EFF had total assets of approximately $199 million and leverage of $67 million or 34% of assets. Leverage consisted of $48 million from a bank credit facility and $19 million of rated VRTP Shares.
EFT and EFF's asset coverage ratios for the VRTP Shares, as calculated in accordance with the Investment Company Act of 1940, were in excess of the minimum asset coverage threshold of 225% currently set by the terms of the preferred shares (Minimum Asset Coverage test).
The funds' governing documents also require the funds to maintain Effective Leverage Ratios (the calculation of which includes both preferred shares and forms of senior leverage) below 45% (or 46% if the increase in the ratio is due exclusively to asset market value volatility). The funds' Effective Leverage Ratios are currently below 45%.
Compliance with the asset coverage and effective leverage ratio requirements are tested daily. Failure to cure an asset coverage breach by the Asset Coverage Cure Date results in an Asset Coverage Mandatory Redemption. Failure to cure an Effective Leverage Ratio breach by the Effective Leverage Ratio Cure Date results in an Effective Leverage Ratio Mandatory Redemption.
In the event of an asset coverage breach, subsequent to the Asset Coverage Cure Date each fund shall redeem a sufficient number of Preferred Shares to restore asset coverage compliance. The exposure period to market risk for the preferred shares in the event of a mandatory redemption due to an asset coverage breach is consistent with Fitch's 40 to 60 business day criteria guideline.
In the event of an effective leverage ratio breach, subsequent to the Effective Leverage Ratio Cure Date each fund shall (a) deposit sufficient funds with the Redemption and Paying Agent for the redemption of a sufficient number of Preferred Shares to restore effective leverage ratio compliance, or (b) engage in trades of portfolio assets that would satisfy the effective leverage ratio requirement. The exposure period to market risk for the preferred shares in the event of a mandatory redemption due to an effective leverage ratio breach is consistent with Fitch's 40 to 60 business day criteria guideline.
Fitch performed various stress tests on the funds to assess the strength of the structural protections of the VRTP Shares. The funds' asset coverage and effective leverage tests were compared to the rating stresses outlined in Fitch's closed-end fund rating criteria. These tests included determining various 'worst case' scenarios where the funds' leverage and portfolio composition migrated to the outer limits of the funds' operating and investment guidelines.
The results of the stress tests indicate the structural protections of the VRTP Shares are in line with Fitch's rating criteria at an 'AA' rating level. In certain remote circumstances the asset coverage available to the VRTP Shares fell below the 'AA' threshold. These scenarios included stressing the current portfolio composition by simultaneously increasing the funds' issuer concentration, increasing the funds leverage to the maximum permitted amount, and migrating the portfolio to loans of lower quality.
Eaton Vance Management, a subsidiary of Eaton Vance Corp., acts as the investment adviser to the funds. As of Sept. 30, 2016, Eaton Vance Corp. and affiliates managed approximately $343 billion of assets.
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 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 this rating were the public domain and Eaton Vance Management.
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