Fitch Rates Kayne Anderson MLP Investment Company's Senior Notes 'AAA'; Affirms Existing Ratings

Wed Apr 17, 2013 5:28pm EDT

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(The following statement was released by the rating agency) NEW YORK, April 17 (Fitch) Fitch Ratings assigns an 'AAA' rating to the four series of senior unsecured notes (Notes) issued by Kayne Anderson MLP Investment Company (NYSE Amex: KYN), a non-diversified closed-end fund managed by KA Fund Advisors, LLC. Fitch also affirms ratings on the fund's existing Notes and mandatory redeemable preferred stock (MRPS) as listed at the bottom of this press-release. --$75,000,000 2.74% Series DD Notes due April 16, 2019; --$50,000,000 3.20% Series EE Notes due April 16, 2021; --$65,000,000 3.57% Series FF Notes due April 16, 2023; --$45,000,000 3.67% Series GG Notes due April 16, 2025. The closing took place today April 16, 2013 with an aggregate notional issuance of $235 million that is being privately placed with institutional investors. Upon issuance, $110 million will be used to make new portfolio investments (thereby increasing fund leverage), and subsequently in June 2013 the remaining $125 million will be used to refinance series K Notes at maturity. KEY RATING DRIVERS The rating assignments and affirmations reflect: --Sufficient pro forma asset coverage provided to the Notes as calculated per the fund's asset coverage 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 fund's operations; --The capabilities of KA Fund Advisors, LLC as investment advisor. FUND PROFILE As of Feb. 28, 2013, fund's total assets were $4,889 million and total leverage was $1,285 million, or 26.3% of assets. The leverage consisted of $890 million in outstanding Notes, $21 million drawn on the fund's credit facility and $374 million in mandatory redeemable preferred stock. Incorporating the expected Note issuance onto the current portfolio would increase the fund leverage to approximately 28%. ASSET COVERAGE The fund's pro forma asset coverage ratios for the Notes, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines outlined in Fitch's closed-end fund criteria, were in excess of 100%. This is the minimum asset coverage guideline required by the fund's governing documents and evaluated as such by Fitch. The fund's pro forma asset coverage ratios for the Notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), were in excess of 300%, which is the minimum asset coverage required by the 1940 Act at the time of issuance and the fund's governing documents. STRUCTURAL PROTECTIONS Should the asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each week), under the terms of the notes the fund is required to deliver notice to the note purchasers within five business days. The fund manager is then expected to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for both the Fitch OC Tests and the 1940 Act test breaches) within a pre-specified time period (a maximum of 47 calendar days for the Fitch OC Tests and a longer period for the 1940 Act test). Failure to cure an asset coverage breach as described above, an event of default under the terms of the notes. The fund must then deliver a notice within five business days to the note purchasers and a majority vote of note purchasers may then declare all the notes then outstanding to be immediately due and payable. THE FUND The fund invests principally in equity securities of energy-related publicly traded master limited partnerships (MLPs). Energy-related MLPs own domestic infrastructure assets that are used in the gathering, processing, transportation, storage, refining and distribution of energy-related commodities. The fund's objective is to obtain high after tax total returns for its shareholders. As of Feb. 28, 2013, the fund carried a differed tax liability in the amount of $810 million as a result of certain unrealized gains for tax purposes typically seen in MLP closed-end funds. However, under a stressed market scenario, the fund may have to liquidate portfolio assets to restore its asset coverage ratios, and as such, much of the currently existing unrealized gains would likely be eliminated or significantly reduced as a result of asset price declines. To account for any residual risk, Fitch's rating criteria reduces discounted portfolio assets by 10% of the deferred tax liability when calculating its Fitch OC Tests for rated notes and preferred shares. THE ADVISOR KA Fund Advisors, LLC is the fund's investment adviser, responsible for implementing and administering the fund's investment strategy and a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson) a Securities and Exchange Commission-registered investment adviser. As of Dec. 31, 2012 Kayne Anderson and its affiliates managed approximately $18 billion, including over $15 billion in the Midstream/Energy Sector. Kayne Anderson has invested in MLPs and other midstream energy companies since 1998. CONCURRENT RATING AFFIRMATIONS Fitch affirms the following ratings: --$125,000,000 series K 5.991% Notes due on June 19, 2013 at 'AAA'; --$60,000,000 series M 4.56% Notes due on Nov. 4, 2014 at 'AAA'; --$50,000,000 series N 3-month LIBOR + 185 bps Notes due on Nov. 4, 2014 at 'AAA'; --$65,000,000 series O 4.21% Notes due on May 7, 2015 at 'AAA'; --$45,000,000 series P 3-month LIBOR + 160 bps Notes due on May 7, 2015 at 'AAA'; --$15,000,000 series Q 3.23% Notes due on Nov. 9, 2015 at 'AAA'; --$25,000,000 series R 3.73% Notes due on Nov. 9, 2017 at 'AAA'; --$60,000,000 series S 4.4% Notes due on Nov. 9, 2020 at 'AAA'; --$40,000,000 series T 4.5% Notes due on Nov. 9, 2022 at 'AAA'; --$60,000,000 series U 3-month LIBOR + 145 bps Notes due on May 26, 2016 at 'AAA'; --$70,000,000 series V 3.71% Notes due on May 26, 2016 at 'AAA'; --$100,000,000 series W 4.38% Notes due on May 26, 2018 at 'AAA'; --$14,000,000 series X 2.46% Notes due on May 3, 2015 at 'AAA'; --$20,000,000 series Y 2.91% Notes due on May 3, 2017 at 'AAA'; --$15,000,000 series Z 3.39% Notes due on May 3, 2019 at 'AAA'; --$15,000,000 series AA 3.56% Notes due on May 3, 2020 at 'AAA'; --$35,000,000 series BB 3.77% Notes due on May 3, 2021 at 'AAA'; --$76,000,000 series CC 3.95% Notes due on May 3, 2022 at 'AAA'; --$104,000,000 series A 5.57% MRPS due on May 7, 2017 at 'AA'; --$8,000,000 series B 4.53% MRPS due on Nov. 9, 2017 at 'AA'; --$42,000,000 series C 5.20% MRPS due on Nov. 9, 2020 at 'AA'; --$100,000,000 series D 4.95% MRPS due on Jun. 1, 2018 at 'AA' (defeased through upcoming redemption on May. 1, 2013); --$120,000,000 series E 4.25% MRPS due on April 1, 2019 at 'AA'; --$125,000,000 series F 3.50% MRPS due on April 15, 2020 at 'AA'. RATINGS SENSITIVITY The rating is based on the terms of the Notes stipulating mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines. Should the fund fail to cure an asset coverage breach, or the note purchasers not declare the Notes due and payable upon an event of default due to an asset coverage breach, this may lengthen exposure to market value risk and cause the ratings to be lowered by Fitch. The ratings may also be sensitive to material changes in the credit quality or market risk profile of the fund. 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 closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website. To receive complimentary closed-end fund research, opt-in at the following link: here Contact: Primary Analyst Yuriy Layvand, CFA Director +1-212-908-9191 Fitch Ratings, Inc. 1 State Street Plaza New York, New York, 10004 Secondary Analyst Gwen Fink-Stone, J.D. +1-212-908-9128 Committee Chairperson Ralph Aurora Senior Director +1-212-908-0528 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: --'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012). Applicable Criteria and Related Research Rating Closed-End Fund Debt and Preferred Stock here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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.

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