News Column

Fitch Confirms VMTP Shares of Two Invesco Funds Following Maturity Extensions

August 29, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings confirms the 'AAA' long-term ratings of Variable Rate Term Preferred Shares (VRTP shares) issued by two senior loan closed-end funds (CEFs) managed by Invesco Advisers, Inc. (NYSE:IVZ) following amendments to extend maturities of each fund's VRTP shares by one year.

Invesco Dynamic Credit Opportunities Fund

--$125,000,000 of VRTP shares, now due Sept. 1, 2017, with a liquidation preference of $100,000 per share issued in series C-1, C-2, C-3, C-4 and L-1.

Invesco Senior Income Trust

--$125,000,000 of VRTP shares, now due Sept. 1, 2017, with a liquidation preference of $100,000 per share issued in series C-1, C-2, C-3, C-4 and L-1.

Fitch has reviewed the funds' Amendments to Statements of Preferences and determined that no other terms, structural or otherwise, have been changed that would affect the ratings.

KEY RATING DRIVERS

The 'AAA' rating confirmations reflect:

--Sufficient asset coverage provided to the VRTP shares as calculated per the funds' over-collateralization (OC) tests;

--The structural protections afforded by mandatory collateral maintenance and 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 funds adviser.

FUND PROFILES

Invesco Dynamic Credit Opportunities Fund is a diversified, closed-end management investment company. The fund commenced investment operations on June 26, 2007 and is registered under the Investment Company Act of 1940 (the 1940 Act). The fund's primary investment objective is to seek a high level of current income with a secondary objective of capital appreciation. Under normal market conditions, the fund will invest at least 80% of its net assets in any combination of senior secured floating-rate and fixed-rate loans, and second lien or other subordinated or unsecured floating-rate and fixed-rate loans or debt. The fund also may invest up to 20% of its assets in structured products, including collateralized debt and loan obligations.

At the time of the rating confirmation, the portfolio held investments in various asset types including leveraged loans (67%), high yield corporate bonds (16%) and collateralized loan obligations (5%). The remaining balance consisted of cash equivalents, receivables and foreign currency positions. The three largest Fitch industry sectors were represented by automobiles, building and materials, chemicals (11%); computer and electronics, communications (10%); and business services (9%). The portfolio is very diverse in terms of issuer concentration with the largest issuer representing approximately 1.38% of the portfolio.

Invesco Senior Income Trust is a diversified, closed-end management investment company. The fund commenced investment operations on June 23, 1998 and is registered under the 1940 Act. The fund's investment objective is to provide a high level of current income, consistent with preservation of capital. Under normal market conditions the fund pursues its objective by investing at least 80% of its total assets in senior secured loans.

At the time of the rating confirmation, the portfolio held investments in various asset types including leveraged loans (85%), high yield corporate bonds (6%) and collateralized loan obligations (5%). The remaining balance consisted of cash equivalents and receivables. The three largest Fitch industry sectors were represented by computer and electronics, communications (12%); building and materials, chemicals (11%); and business services (10%). The portfolio is very diverse in terms of issuer concentration with the largest issuer representing approximately 1.32% of the portfolio.

FUNDS' LEVERAGE

Invesco Dynamic Credit Opportunities Fund employs leverage in the form of a revolving line of credit, of which $350 million was drawn as of the July 31, 2014 surveillance report out of a facility limit of $400 million, and $125 million of VRTP shares. The bank line is secured by a general senior first claim on the fund's assets, which is reflected in Fitch's OC and Net OC calculations. The VRTP shares are subordinate to the line of credit and senior to the fund's outstanding common shares.

Invesco Senior Income Trust employs leverage in the form of a revolving line of credit, of which $280 million out of a facility limit of $350 million was drawn as of the July 31, 2014 surveillance report, and $125 million of VRTP shares. The bank line is secured by a general senior first claim on the fund's assets, which is reflected in Fitch's OC and Net OC calculations. The VRTP shares are subordinate to the line of credit and senior to the fund's outstanding common shares.

ASSET COVERAGE

Both funds' asset coverage ratios, as calculated in accordance with the Fitch total, and net OC tests (Fitch OC Tests) per the 'AAA' rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%. This is the minimum threshold required under the terms of the VRTP shares.

The tests calculate standardized asset coverage by applying haircuts to portfolio holdings based on perceived riskiness and diversification of the assets and measuring its ability to cover both on- and off-balance-sheet liabilities, if any, at the assigned 'AAA' stress level.

The funds' asset coverage ratios for the VRTP Shares, as calculated in accordance with the 1940 Act, were in excess of the minimum asset coverage threshold of 225% required by the fund's governing documents (Preferred Shares Asset Coverage Test).

The funds have covenanted to maintain the effective leverage ratio (Effective Leverage Test) for the VMTP Shares at or below 45% of total assets. The fund's Effective Leverage Ratio is currently below 45% as noted above.

In the event of breaches to any of the above thresholds, the funds are required to restore compliance per structural protections described below.

STRUCTURAL PROTECTIONS

Compliance with the Fitch OC, Preferred Shares Asset Coverage Test and Effective Leverage thresholds is tested periodically. The funds' manager is expected to cure any breach by altering the composition of the portfolios toward assets with lower discount factors (for Fitch OC breaches), or by reducing leverage in a sufficient amount (for all other breaches) within a pre-specified time period.

For Fitch OC, Asset Coverage and Effective Leverage Tests, the maximum market value exposure (i.e. valuation, cure and redemption) that preferred shareholders would be exposed to before cure or redemption is approximately 55 business days for Invesco Dynamic Credit Opportunities Fund and approximately 60 business days for Invesco Senior Income Trust.

THE FUND'S ADVISER

Invesco Advisers, Inc., an indirect, wholly owned subsidiary of Invesco, Ltd., is the fund's adviser, responsible for the fund's overall investment strategy and its implementation. Invesco Ltd. had approximately $683 billion of assets under management as of June 30, 2014.

RATINGS SENSITIVITY

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 the ratings to be lowered by Fitch.

For additional information about Fitch 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 at 'www.fitchratings.com'.

The sources of information used to assess this rating were the public domain and Invesco Advisers, Inc.

Opt-in to receive Fitch's forthcoming research on closed-end funds:

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

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

Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 14, 2013).

Applicable Criteria and Related Research:

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716220

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=861514

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, Inc.

Primary Analyst

Russ Thomas, +1-312-368-3189

Director

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL, 60602

or

Secondary Analyst

Greg Fayvilevich, +1-212-908-9151

Director

or

Committee Chairperson

Ralph Aurora, +1-212-908-0528

Senior Director

or

Media Relations

Brian Bertsch, +1-212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters