Fitch Rates Preferred Shares of Two DWS Closed-End Funds 'AAA'

Thu Mar 6, 2014 5:13pm EST

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(The following statement was released by the rating agency) NEW YORK, March 06 (Fitch) Fitch Ratings assigns new ratings to the following Floating Rate Municipal Term Preferred Shares (MTPS) previously issued by two closed-end funds managed by Deutsche Investment Management Americas Inc. (DIMA): DWS Municipal Income Trust (KTF) --$188,865,000 of Series 2015 MTPS at 'AAA'. DWS Strategic Municipal Income Trust (KSM) --$60,475,000 of Series 2015 MTPS at 'AAA'. KEY RATING DRIVERS The 'AAA' long-term ratings primarily reflect: --Sufficient asset coverage provided to the MTPS as calculated per the funds' over-collateralization (OC) tests; --The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines; --The legal and regulatory parameters that govern the fund's operations; --The capabilities of DIMA as investment manager and advisor. LEVERAGE As of Jan. 31, 2014, KTF had total assets of approximately $708 million and leverage of approximately $294 million, or 42% of assets. Leverage consisted of approximately $95 million of tender option bond floaters, $189 million of Fitch-rated MTPS and $10 million of remarketed preferred shares. As of the same date, KSM had total assets of approximately $211 million and leverage of approximately $77 million, or 36% of assets. Leverage consisted of approximately $7 million of tender option bond floaters, $60 million of Fitch-rated MTPS and $10 million of remarketed preferred shares. ASSET COVERAGE As of Jan 31, 2014, each fund's asset coverage ratio for total outstanding preferred shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage of 225% required by the fund's governing documents (Asset Coverage Test). As of the same date, each fund's effective leverage ratio was below the 45% maximum leverage ratio allowed (or 46% in case of portfolio market value decline) by the fund's governing documents (Effective Leverage Test). STRUCTURAL PROTECTIONS In the event of asset coverage declines, the funds' governing documents require the funds to reduce leverage in order to restore compliance with the test(s) within 32 business days for the Asset Coverage Test and 11 business days for the Effective Leverage Test. DIMA will also manage the funds within Fitch's municipal issuer diversification guidelines as per Fitch closed-end fund criteria. STRESS TESTS Fitch performed various stress tests on the funds' portfolios and leverage composition to assess the rating impact of different stresses relative to the Fitch closed-end fund criteria. These tests included determining various 'worst case' scenarios where the funds' leverage and portfolio composition migrated to the outer limits of the funds' operating and investment guidelines. In all stress scenarios, KTF's MTPS structural protections coupled with investment guidelines passed at an 'AAA' rating level. For KSM, only under remote scenarios, such as increasing the fund's state and sector investment concentration, while simultaneously migrating the portfolio to a mix of 50% high yield and 50% 'BBB' rated long-term securities, did the asset coverage available to the MTPS fall below the 'AAA' threshold, and instead passed at an 'AA' rating level. Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views the funds' permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating. THE FUNDS Both funds are closed-end management investment companies regulated by the Investment Company Act of 1940. KSM can invest up to 50% of assets in municipal securities that at the time of purchase are rated below investment grade quality or that are unrated but judged to be of comparable quality by the investment adviser. KTF will invest substantially all of its assets in investment grade municipal securities. THE ADVISOR DIMA is part of Deutsche Asset & Wealth Management and is the investment advisor for the funds, responsible for the funds' overall investment strategy and implementation. DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Asset & Wealth Management is the asset management division of Deutsche Bank AG. As of Dec. 31, 2013, Deutsche Asset & Wealth Management, which provides a full range of investment advisory services to retail and institutional clients, including private wealth clients, had total invested assets of approximately EUR931.4 billion. RATINGS SENSITIVITY The ratings assigned to the MTPS may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch. The funds have the ability to assume economic leverage through derivative transactions which may not be captured by the funds' Asset Coverage Test or Effective Leverage Test. The funds do not currently engage in derivative activities for speculative purposes and do not envision engaging in material amounts of such activity in the future. Material derivative exposure in the future could have potential negative rating implications if it adversely affects asset coverage available to rated MTPS. 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'. Contact: Primary Analyst Ian Rasmussen Senior Director +1-212-908-1232 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Benjamin Han Analyst +1-212-908-9177 Committee Chairperson Manuel Arrive Senior Director +33 144 299 177 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. The sources of information used to assess this rating were the public domain and Nuveen Fund Advisors. Opt-in to receive Fitch's forthcoming research on closed-end funds: here Applicable Criteria and Related Research: --'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 14, 2013); --'2014 Outlook: Closed-End Funds' (Dec. 13, 2013). Applicable Criteria and Related Research: Rating Closed-End Fund Debt and Preferred Stock here 2014 Outlook: Closed-End Funds (Structural Protections Support Rating Stability) 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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