N@N

Fitch Expects to Rate BlackRock Muni Intermediate Duration Fund, Inc.'s VRDP Shares 'AAA/F1+'

^{Published on 2011-02-23 08:15:29 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings expects to assign 'AAA/F1+' ratings to the following variable rate demand preferred shares (VRDP Shares) to be issued by BlackRock Muni Intermediate Duration Fund, Inc. (NYSE:MUI), a municipal closed-end fund managed by BlackRock Advisors LLC:

--Up to $287,100,000 of Variable Rate Demand Preferred Shares, Series W-7, with a liquidation preference of $100,000 per share.

The expected short-term rating assigned to the VRDP Shares addresses the full and timely repayment of dividends and liquidation preference due to holders on the next remarketing date following optional or mandatory tender of the securities. The expected short-term rating is based on the terms and conditions of the purchase agreement, the credit quality of JPMorgan Chase Bank, N.A. (JPMorgan; rated 'AA-/F1+' by Fitch), as liquidity provider, and sufficient asset coverage provided by the fund's managed assets.

The expected long-term rating assigned to the VRDP Shares addresses the likelihood of full and timely payment of dividends on the next remarketing date and liquidation preference upon optional or mandatory redemption. The main drivers for the expected long-term rating are sufficient asset coverage provided to the VRDP Shares by MUI's managed assets, 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 and the capabilities of BlackRock Advisors LLC, as investment adviser.

The VRDP Shares will be adjustable rate preferred shares that have an unconditional demand feature that allows investors to tender the securities weekly through a purchase agreement provided initially by JPMorgan as liquidity provider. The dividend rate on the VRDP Shares will be re-set weekly through remarketing by J.P. Morgan Securities LLC, as remarketing agent, and will be subject to a maximum rate calculated as a spread over the greater of the SIFMA Municipal Swap Index or LIBOR. The Bank of New York Mellon (rated 'AA-/F1+' by Fitch) will serve as the tender and paying agent, and as such, will provide remarketing results to the holders of VRDP Shares, tender and deliver non-clearing VRDP Shares from holders to the liquidity provider, and notify the holders of VRDP Shares of non-renewal and termination of the purchase agreement, among other duties.

Fitch expects to finalize its ratings on the Series W-7 VRDP Shares on the targeted closing date in March 2011. The proceeds from the sale of the VRDP Shares are expected to be used to redeem in full MUI's outstanding Auction Market Preferred Shares (AMPS). Although the exact issuance size of the VRDP Shares has not yet been determined, Fitch expects asset coverage levels to be consistent with Fitch's 'AAA' (and by extension 'F1+') rating level criteria. Should the issuance size or terms of the VRDP Shares materially differ from the expectation, this could result in different ultimate rating conclusions than the current expected ratings. As of Jan. 28, 2011, MUI's pro forma VRDP Shares leverage was approximately 32% of managed assets. Additionally, the fund maintained economic leverage in the form of inverse floating-rate securities issued by tender option bond trusts.

At the time of the expected rating, MUI's 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 outlined in Fitch's applicable criteria, were in excess of 100%, which are the minimum asset coverage amounts deemed consistent with an 'AAA' rating. The Fitch OC Tests calculate asset coverage based on the market price volatility and diversification of the fund's assets and account for the fund's full structural and economic leverage. Should the asset coverage tests of the VRDP Shares decline below 100% (as tested weekly) and are not cured within the pre-specified timeframe of 10 business days, the governing documents require the fund to reduce leverage in a sufficient amount to restore compliance with the applicable asset coverage tests within 60 calendar days.

Also at the time of the expected rating, MUI's pro forma asset coverage ratio for the expected VRDP Shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of 225%, which is the minimum asset coverage required by the fund's governing documents (Minimum Asset Coverage Test). Should the Minimum Asset Coverage Test decline below its threshold amount, the governing documents' mandatory redemption provisions require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage test(s). The fund has also instituted an Effective Leverage Test for both preferred shares and floating-rate certificates of tender option bonds requiring it to maintain an effective leverage ratio lower than 45%. If the fund does not cure a breach of the Effective Leverage Test within 60 days, all VRDP Shares must be mandatorily tendered by the holders thereof.

The VRDP Shares will be supported by a purchase agreement to ensure full and timely repayment of dividends and liquidation preference to holders on the next remarketing date. Pursuant to the agreement, JPMorgan unconditionally agrees to purchase all VRDP Shares tendered for sale that have not been sold during remarketing on a revolving basis. VRDP Shares will be purchased by the liquidity provider at liquidation preference plus accumulated and unpaid dividends. Once VRDP Shares are tendered, the purchase agreement is unconditional and irrevocable and as such, the expected short-term rating to be assigned to the VRDP Shares is directly linked to the short-term creditworthiness of the liquidity provider.

The liquidity provider's obligation is for a term of two years from Dec. 28, 2010. If the purchase agreement is not renewed and a replacement liquidity provider has not been found 15 days prior to the agreement's expiration, a mandatory purchase event will occur and the liquidity provider will be obligated to purchase all outstanding VRDP Shares on the business day prior to the expiration date of the purchase agreement. In addition, the VRDP Shares are subject to mandatory tender if the short-term ratings of the liquidity provider are downgraded below 'F2' by Fitch or equivalent, if the fund is unable to make a scheduled payment of dividends, or if the fund is unable to cure a breach to the Effective Leverage Ratio within 60 days.

For purposes of calculating Fitch OC Tests, Fitch will deem VRDP Shares to be outstanding until shares are redeemed by the fund. Put another way, Fitch will continue to include as fund leverage any VRDP Shares that have failed their remarketing and are held by the liquidity provider. This is intended to reflect the fact that such issuance still remains an obligation of the fund. MUI is expected to agree to redeem VRDP Shares that have been purchased by the liquidity provider under its purchase obligation if such shares have been held by the liquidity provider for six months. Upon the purchase of VRDP Shares by the liquidity provider, MUI will cause its custodian to segregate assets equal to 110% of the liquidation preference of VRDP Shares purchased. Fitch expects to maintain long- and short-term ratings on shares purchased by the liquidity provider, based on available asset coverage and structural protections.

BlackRock Muni Intermediate Duration Fund, Inc. is a non-diversified, closed-end management investment company that commenced investment operations on Aug. 1, 2003. The fund seeks to provide shareholders with high current income exempt from federal income taxes by investing primarily in a portfolio of municipal obligations, the interest on which is exempt from federal income taxes. Under normal circumstances, the fund invests at least 80% of net assets in municipal bonds with duration of three to ten years. Also under normal circumstances, the fund invests at least 75% of total assets that are rated at least 'BBB' by Fitch or equivalent.

BlackRock Advisors LLC is MUI's investment adviser, responsible for the fund's overall investment strategy and implementation. BlackRock Advisors LLC is a wholly owned subsidiary of BlackRock, which had approximately $3.561 trillion of assets under management as of Dec. 31, 2010.

The ratings, once formally assigned to the VRDP Shares, may be sensitive to material changes in the leverage composition, credit quality of portfolio assets or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch. Furthermore, the short-term rating assigned to the VRDP Shares may be sensitive to changes in the financial condition of the liquidity provider. For example, absent other mitigants, a downgrade of the liquidity provider to 'F1' would result in a downgrade of the short-term rating of the VRDP Shares to 'F1'. A downgrade below 'F2', on the other hand, would not necessarily result in a downgrade of the short-term rating of the VRDP Shares, given the acceleration features in the transaction which would result in a mandatory tender of the VRDP Shares for purchase by the liquidity provider. 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 BlackRock Advisors LLC.

Applicable Criteria and Related Research:

--' Fitch Launches 'CEF Updates' for Closed-End Fund's, dated Nov. 8, 2010;

--'Closed-End Funds: Evolving Use of Leverage and Derivatives' dated Sept. 27, 2010;

--'Closed-End Funds: Redemptions Provide Some Liquidity to Illiquid ARPS Market', dated Aug. 31, 2010;

--'Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations', dated March 18, 2010;

--'Closed-End Fund Debt and Preferred Stock Rating Criteria', dated Aug. 17, 2009.

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.