Fitch Expects to Rate Kayne Anderson Energy Total Return Fund's SR Notes 'AAA' & MRPS 'AA'
NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings expects to rate the following senior securities to be issued by Kayne Anderson Energy Total Return Fund, Inc. (NYSE: KYE), a closed-end, non-diversified investment management company advised by KA Fund Advisors, LLC as follows:
--$30,000,000 3-month LIBOR + 145 bps series F senior unsecured notes due in May 2016 'AAA';
--$20,000,000 3.71% series G senior unsecured notes due in May 2016 'AAA';
--$10,000,000 4.38% series H senior unsecured notes due in May 2018 'AAA';
--$30,000,000 5.13% series B mandatory redeemable preferred stock (MRPS) due in May 2018 'AA'.
Fitch expects to finalize the ratings on the senior unsecured notes and MRPS on the closing date which is scheduled to take place by the end of May 2011. The expected ratings are based on sufficient asset coverage to be provided to the senior unsecured notes and to MRPS by the fund's portfolio, mandatory de-leveraging provisions, the legal and regulatory parameters that govern the fund's operations and the capabilities of KA Fund Advisors, LLC as investment advisor. The fund expects to use the net proceeds from the sale of the above mentioned securities to repay borrowings under the fund's revolving credit facility, to make new portfolio investments and for general corporate purposes.
As of March 31, 2011, the fund's total assets were approximately $1.4 billion, including leverage. Total leverage consisted of $250 million of unsecured senior notes (rated 'AAA' by Fitch at par), $90 million of MRPS (rated 'AA' by Fitch at par), and $49 million of bank borrowing.
At the time of the issuance, the fund's pro forma asset coverage ratio for senior unsecured notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), is expected to be in excess of 300%, which is the minimum asset coverage required by the 1940 Act for such debt securities. The fund's pro forma asset coverage ratio for MRPS, as calculated in accordance with the 1940 Act, is expected to be in excess of 200%, which is the minimum asset coverage required by the 1940 Act for senior equity securities. Also, at the time of issuance, the fund's pro forma asset coverage ratios with respect to the senior unsecured notes and MRPS, as calculated in accordance with Fitch's 'AAA' and 'AA' overcollateralization tests are expected to be in excess of 100%, which are the minimum asset coverage levels deemed consistent with the expected ratings to be assigned to the senior unsecured notes and MRPS.
Should the asset coverage tests of either the senior unsecured notes or the MRPS decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the governing documents require the funds to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests.
Fitch's overcollateralization test for a given rating category is calculated by dividing the total discounted value of the fund's eligible assets by the sum of total fund's liabilities. Certain securities currently issued or to be issued by Kayne Anderson Energy Total Return Fund contain early prepayment provisions. Given that the fund is contractually obligated to honor these provisions in the event of pre-payment, Fitch includes these potential additional liabilities in the denominator of its calculation of overcollateralization. Fitch may also apply additional stress assumptions to account for the variable nature of any make-whole amounts associated with prepayments.
Kayne Anderson Energy Total Return Fund invests principally in equity and debt securities of companies in the energy industry, such as energy-related master limited partnerships (MLPs), U.S. and Canadian royalty trusts and income trusts, marine transportation companies, and coal companies. The fund's objective is to obtain a high total return with an emphasis on current income.
KA Fund Advisors, LLC is the fund's investment adviser, responsible for implementing and administering the fund's investment strategy. It is a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson), a Securities and Exchange Commission-registered investment adviser. As of March 31, 2010, Kayne Anderson and its affiliates managed approximately $12.6 billion. Kayne Anderson has invested in MLPs and other midstream energy companies since 1998.
The rating may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch. For additional information about Fitch's closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's web site.
Additional information is available at '[ www.fitchratings.com ]'.
The sources of information used to assess these ratings were the public domain and KA Fund Advisors, LLC.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria', Aug. 17, 2009;
--'Closed-end Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations', March 18, 2010.
Applicable Criteria and Related Research:
Closed-End Fund Debt and Preferred Stock Rating Criteria
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462492 ]
Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504986 ]
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