News Column

Fitch Provides Update on the Leverage Market of U.S. Closed-End Funds

May 1, 2014



NEW YORK--(BUSINESS WIRE)-- Fitch Ratings presented a panel of industry experts in the closed-end fund (CEF) industry titled 'Use of Leverage by U.S. Closed-End Funds' at the 13th Annual Capital Link Closed-End Funds and Global ETFs Forum held on April 24, 2014. Presentation slide deck can now be accessed on Fitch's website at the links provided at the end of this press release.

The 259 taxable CEF sector issued approximately $50 billion of leverage - this is up by $9 billion since same time last year due to NAV appreciation and new fund IPOs. The 193 municipal CEF sector issued approximately $34 billion - this is mostly unchanged as NAVs have only recently recovered the interest rate stress period they faced in late 2013.

Leverage management remains a prudent responsibility by fund advisers. Although leverage can benefit CEF investors by increasing total returns and dividend payout ratios, performance is not the only consideration. Managers must also keep in mind continued access to capital markets, diversification of borrowing sources, and the cost of leverage over the long term especially now with rates being at historical lows.

Over the last year, CEF managers remained active by issuing new leverage security types, attracting new lenders, and fixing their leverage costs by issuing term notes and preferred stock. A particular leverage sector increasing in importance is the private placement market for raising debt capital. Over the past year as costs decreased, issuance by taxable CEFs in this market hit record highs. Fitch expects this trend to continue, including sectors other than MLP funds.

In the municipal space, funds have refinanced a large portion of their publicly traded preferred stock into private securities placed directly with banks. Municipal funds are also focusing on solutions to tender option bond leverage that is being impacted by Volcker and Risk Retention Rules of the Dodd Frank.

Moderator:

--Ian Rasmussen, Senior Director of Fund & Asset Management - Fitch Ratings

Panelists:

--William White, Managing Director of Debt Private Placements - Bank of America Merrill Lynch

--Jody Meraz, VP of Publicly Traded Funds; Managing Director - Kayne Anderson Capital Advisors, L.P.

--William Meyers, Managing Director, GSPG Capital Markets - Nuveen Investments

--Yuriy Layvand, Director of Fund & Asset Management - Fitch Ratings

Fitch rates approximately $30 billion of debt and preferred stock issued by U.S. leveraged CEFs. The agency publishes periodic research and commentary on the sector and market developments. To opt-in to our complimentary monthly mailing list, register at the following link:

http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Use of Leverage in CEFs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747937

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.



Fitch Ratings

Yuriy Layvand, CFA

Director

+1-212-908-9191

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

or

Ian Rasmussen

Senior Director

+1-212-908-0232

or

Media Relations

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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