Fitch Rates Tortoise Closed-End Fund Notes 'AAA'; Affirms Existing Ratings

Fri Sep 27, 2013 3:50pm EDT

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(The following statement was released by the rating agency) NEW YORK, September 27 (Fitch) Fitch Ratings assigns an 'AAA' rating to the following notes issued by two closed-end funds managed by Tortoise Capital Advisors, LLC: Tortoise Energy Capital Corporation (TYY): --$12,000,000 2.75% Series M Senior Notes due on Sept. 27, 2017; --$15,000,000 3.48% Series N Senior Notes due on Sept. 27, 2019; --$13,000,000 4.21% Series O Senior Notes due on Sept. 27, 2022; --$5,000,000 Series P Floating Rate Senior Notes due on Sept. 27, 2018. Tortoise Energy Infrastructure Corp (TYG): --$13,000,000 2.75% Series M Senior Notes due on Sept. 27, 2017; --$10,000,000 3.15% Series N Senior Notes due on Sept. 27, 2018; --$15,000,000 3.78% Series O Senior Notes due on Sept. 27, 2020; --$12,000,000 4.39% Series P Senior Notes due on Sept. 27, 2023; --$10,000,000 Series Q Floating Rate Senior Notes due on Sept. 27, 2018. Fitch has assigned an 'AAA' rating to TYY's existing notes outstanding: Tortoise Energy Capital Corporation (TYY): --$12,500,000 2.77% Series J Senior Notes due on June 14, 2020; --$12,500,000 2.98% Series K Senior Notes due on June 14, 2021; --$10,000,000 3.48% Series L Senior Notes due on June 14, 2025. Fitch also affirms the existing notes at 'AAA' and mandatory redeemable preferred stock (MRPS) ratings at 'AA' as listed at the end of this release. KEY RATING DRIVERS The rating assignments and affirmations reflect: --Sufficient pro forma asset coverage provided to notes and MRPS 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 Tortoise Capital Advisors, LLC as investment advisor. FUNDS PROFILE TYY and TYG are non-diversified, closed-end management investment companies sharing a similar investment goal of obtaining a high level of total return with an emphasis on current distributions. The funds invest the majority of their portfolios in equity securities of publicly-traded Master Limited Partnerships (MLP) and their affiliates in the energy infrastructure sector. These companies gather, transport, process, store, distribute or market natural gas, natural gas liquids, coal, crude oil, refined petroleum products or other natural resources, or explore, develop, manage or produce such commodities. ASSET COVERAGE As of Aug. 31, 2013, the funds' pro forma asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines for the notes and the 'AA' rating guidelines for the MRPS, outlined in Fitch's closed-end fund criteria, were in excess of 100%. These are the minimum asset coverage guidelines required by the fund's governing documents, and evaluated as such by Fitch to arrive at the assigned rating levels. As of Aug. 31, 2013, the funds' asset coverage ratio for the notes, as calculated in accordance with the Investment Company Act of 1940 (the 1940 Act), was in excess of 300%. The funds' pro forma asset coverage ratio for total leverage, including the MRPS, as calculated in accordance with the 1940 Act, was in excess of 200%. These are the minimum asset coverage ratios required by the 1940 Act and the fund's governing documents. NOTES ON 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 is 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 is also prohibited from paying out a common stock dividend if it fails to cure a breach to the notes' 300% 1940 Act asset coverage test. Fitch views this as an added incentive to cure and deleverage in a timely manner, regardless of acceleration by the notes purchasers. MRPS STRUCTURAL PROTECTIONS Should the MRPS Asset Coverage Test and Fitch OC Test decline below their minimum threshold amounts (as tested weekly) the funds are required to deliver notice to the MRPS purchasers within five days of becoming aware of such fact. The fund manager is required 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 Asset Coverage Test breaches) within a pre-specified time period (a maximum of 47 calendar days). LEVERAGE As of Aug. 31, 2013, TYG total assets were $2,032 million supporting $210 million of unsecured senior notes, $80 million of MRPS and $49.4 million of bank borrowing. As of the same date, TYY total assets were $1,041 million supporting $104.4 million of unsecured senior notes, $50 million of MRPS and $8.9 million of bank borrowing. THE ADVISOR Tortoise, a wholly owned subsidiary of Tortoise Holdings, LLC, is the fund's investment advisor, responsible for the fund's overall investment strategy and its implementation. The advisor was formed in October 2002 and, as of July 31, 2013, had approximately $13.1 billion in assets under management. Montage Asset management, LLC, a wholly-owned entity of Mariner Holdings, LLC owns approximately 61% of Tortoise Holdings, LLC, with the remaining interest held by certain senior Tortoise employees. Fitch affirms the following ratings: Tortoise Energy Infrastructure Corporation (TYG): --$110,000,000 of Series E Senior Unsecured Notes due in April 2015 at 'AAA'; --$30,000,000 of Series G Senior Unsecured Notes due in December 2016 at 'AAA'; --$15,000,000 Series H Floating Rate Senior Notes due on May 12, 2014 at 'AAA'; --$10,000,000 4.35% Series I Senior Notes due on May 12, 2018 at 'AAA'; --$15,000,000 3.30% Series J Senior Notes due on Dec. 19, 2019 at 'AAA'; --$10,000,000 3.87% Series K Senior Notes due on Dec. 19, 2022 at 'AAA'; --$20,000,000 3.99% Series L Senior Notes due on Dec. 19, 2024 at 'AAA'; --$80,000,000 of Series B MRPS with a liquidation preference of $10 per share due in December 2027 at 'AA'. Tortoise Energy Capital Corporation (TYY): --$39,400,000 of Series D Senior Unsecured Notes due in December 2014 at 'AAA'; --$5,000,000 Series G Floating Rate Senior Notes due on June 15, 2014 at 'AAA'; --$12,500,000 3.88% Series H Senior Notes due on June 15, 2016 at 'AAA'; --$12,500,000 4.55% Series I Senior Notes due on June 15, 2018 at 'AAA'; --$50,000,000 of Series C MRPS with a liquidation preference of $10 per share due in March 2018 at 'AA'. RATINGS SENSITIVITY The ratings are based on the terms stipulating mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines. In the case of the rated notes, 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, 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 forthcoming complimentary closed-end fund research from Fitch, opt-in at the following link: here Contact: Primary Analyst Yuriy Layvand, CFA Director +1-212-908-9191 Fitch Ratings, Inc. One State Street Plaza New York, New York, 10004 Analyst Michael Swan +1-212-908-9108 Committee Chairperson Davie Rodriguez, CFA Senior Director +1-212-908-0386 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. 14, 2013); --' Closed-End Funds Weather Rate Rise (Loan Funds Sail through Volatility, Bond Funds Diverge)' (Aug. 23, 2013); --' Basel III to Affect Taxable Closed- End Funds (Impact Muted by Short Tenor and High Quality of Taxable CEF Bank Loans)' (June 18, 2013); --' Taxable Closed-End Funds Dashboard' (June 4, 2013); --' 12th Annual Capital Link Forum - Closed-End Fund Leverage Slides' (May 1, 2013). Applicable Criteria and Related Research: 12th Annual Capital Link Forum - Closed-End Fund Leverage Slides here Taxable Closed-End Funds Dashboard here Basel III to Affect Taxable Closed- End Funds (Impact Muted by Short Tenor and High Quality of Taxable CEF Bank Loans) here Closed-End Funds Weather Rate Rise (Loan Funds Sail through Volatility, Bond Funds Diverge) here 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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