Fitch Rates Kayne Anderson MLP Investment Co's Sr Notes 'AAA'; Affirms Existing Ratings

Mon Feb 10, 2014 4:14pm EST

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(The following statement was released by the rating agency) NEW YORK, February 10 (Fitch) Fitch Ratings rates the upsize of the following notes at 'AAA' 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 end of this press release. --$75,000,000 of Series HH floating rate senior notes, due Aug. 19, 2016 (Series HH notes). The Series HH notes mature on Aug. 19, 2016 and pay interest at a rate of three-month LIBOR plus 1.25% per annum, and will be reset quarterly. The fund is issuing the notes to qualified institutional buyers in a private offering pursuant to Rule 144A under the Securities Act of 1933. The notes are being issued under the same indenture as the $175 million of Series HH floating rate senior notes previously issued by the fund and rated by Fitch on Aug. 22, 2013. The total amount outstanding now totals $250 million. The sale of the upsize to Series HH notes closed on Feb. 7, 2014, and net proceeds will be used to refinance existing leverage. 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 KA Fund Advisors, LLC as investment advisor. FUND PROFILE As of Dec. 31, 2013, fund's total assets were $6,361 million and total leverage was $1,688 million, or 26.5% of assets. The leverage consisted of $1,175 million in outstanding notes, $64 million drawn on the fund's credit facility and $449 million in mandatory redeemable preferred stock. Incorporating the expected note issuance into the current portfolio would not change the fund's leverage. ASSET COVERAGE As of Dec. 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 Dec. 31, 2013, the funds' pro forma asset coverage ratio for the notes, as calculated in accordance with the Investment Company Act of 1940 (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 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). 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 Dec 31, 2013, the fund carried a deferred tax liability in the amount of $1,124 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 is a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson) a Securities and Exchange Commission-registered investment adviser. As of Oct 31, 2013, Kayne Anderson and its affiliates managed assets of approximately $24.5 billion, including over $21 billion in the Energy Sector (of which $15 billion was invested in MLPs and Midstream Companies). Kayne Anderson has invested in MLPs and other midstream energy companies since 1998. CONCURRENT RATING AFFIRMATIONS Fitch affirms the following ratings: --$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 4.21% Series O 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 3.23% Series Q notes due on Nov. 9, 2015 at 'AAA'; --$25,000,000 3.73% series R notes due on Nov. 9, 2017 at 'AAA'; --$60,000,000 4.4% series S notes due on Nov. 9, 2020 at 'AAA'; --$40,000,000 4.5% series T 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 3.71% series V notes due on May 26, 2016 at 'AAA'; --$100,000,000 4.38% series W notes due on May 26, 2018 at 'AAA'; --$14,000,000 2.46% series X notes due on May 3, 2015 at 'AAA'; --$20,000,000 2.91% series Y notes due on May 3, 2017 at 'AAA'; --$15,000,000 3.39% series Z notes due on May 3, 2019 at 'AAA'; --$15,000,000 3.56% series AA notes due on May 3, 2020 at 'AAA'; --$35,000,000 3.77% series BB notes due on May 3, 2021 at 'AAA'; --$76,000,000 3.95% series CC notes due on May 3, 2022 at 'AAA'; --$75,000,000 2.74% Series DD notes due April 16, 2019 at 'AAA'; --$50,000,000 3.20% Series EE notes due April 16, 2021 at 'AAA'; --$65,000,000 3.57% Series FF notes due April 16, 2023 at 'AAA'; --$45,000,000 3.67% Series GG notes due April 16, 2025 at 'AAA'; --$175,000,000 series HH 3-month LIBOR + 125 bps notes due on August 19, 2016 at 'AAA'; --$104,000,000 5.57% series A MRPS due on May 7, 2017 at 'AA'; --$8,000,000 4.53% series B MRPS due on Nov. 9, 2017 at 'AA'; --$42,000,000 5.20% series C MRPS due on Nov. 9, 2020 at 'AA'; --$120,000,000 4.25% series E MRPS due on April 1, 2019 at 'AA'; --$125,000,000 3.50% series F MRPS due on April 15, 2020 at 'AA'; --$50,000,000 4.60% series G MRPS due on Oct. 1, 2021 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. One State Street Plaza New York, New York, 10004 Secondary Analyst 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); --‘MLP Closed-End Funds: A Capital Structure Case Study’ (Dec. 2, 2013); --‘ 2014 Outlook: U.S. Closed-End Fund Leverage’ (Jan 14, 2014). Applicable Criteria and Related Research: 2014 Outlook: U.S. Closed-End Fund Leverage here MLP Closed-End Funds: A Capital Structure Case Study 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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