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Fitch Takes Rating Actions on Kayne Anderson MLP Investment Company's Senior Notes

^{Published on 2011-05-26 12:11:07 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings assigns 'AAA' ratings to $230 million of senior unsecured notes issued by Kayne Anderson MLP Investment Company (NYSE: KYN), a non-diversified closed-end fund managed by KA Fund Advisors, LLC. Fitch also affirms 'AAA' ratings assigned to $620 million of senior unsecured notes issued by the same fund. A complete list of rating actions can be found at the end of this release.

The ratings are based on sufficient asset coverage provided by the fund's portfolio relative to Fitch's published criteria, 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 newly issued senior unsecured notes to repay borrowings under the fund's revolving credit facility, to refinance $75,000,000 series G senior unsecured notes due on June 16, 2011, to make new portfolio investments and for general corporate purposes.

As of April 30, 2011, the fund's total assets were approximately $3.7 billion, including $899 million of leverage, at par. Leverage consisted of $620 million of senior unsecured notes, $160 million of mandatory redeemable preferred stock and $119 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), was in excess of 300%, which is the minimum asset coverage required by the 1940 Act for such debt securities. Also, at the time of issuance, the fund's pro forma asset coverage ratios with respect to the senior unsecured notes, as calculated in accordance with Fitch's 'AAA' overcollateralization test, was in excess of 100%, which are the minimum asset coverage levels deemed consistent with the 'AAA' ratings assigned to the senior unsecured notes. Should the asset coverage tests decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the governing documents require the fund 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 senior securities currently issued by Kayne Anderson MLP Investment Company contain early prepayment penalties. Given that the fund is contractually obligated to honor these penalties in the event of prepayment, Fitch includes these additional conditional liabilities as part of total leverage in calculating the relevant Fitch overcollateralization tests.

The fund's objective is to obtain high after-tax total returns for its shareholders. In addition, the fund is managed to optimize the after-tax return. The fund achieves it objective by investing 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. As of April 30, 2011, the fund incurred a deferred tax liability in the amount of $531.2 million. Under a stressed market scenario, the fund may have to liquidate portfolio assets to restore its asset coverage ratios. If such a scenario occurred, currently existing unrealized gain would likely be eliminated or significantly reduced as a result of asset price declines causing such liquidation.

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 April 30, 2011, Kayne Anderson and its affiliates managed approximately $13.1 billion. Kayne Anderson has invested in MLPs and other midstream energy companies since 1998.

The ratings may be sensitive to material changes in the credit quality or market risk profiles 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 web site.

Fitch assigns 'AAA' ratings to:

--$60,000,000 series U senior unsecured notes floating-rate notes 3-month LIBOR + 145 basis points (bps) due in May 2016;
--$70,000,000 series V 3.71% senior unsecured notes due in May 2016;
--$100,000,000 series W 4.38% senior unsecured notes due in May 2018.

Fitch affirms 'AAA' ratings assigned to:

--$60,000,000 series I 5.847% senior unsecured notes due in June 2012;
--$125,000,000 series K 5.991% senior unsecured notes due in June 2013;
--$60,000,000 series M 4.56% senior unsecured notes due in November 2014;
--$50,000,000 series N 3-month LIBOR + 185 bps senior unsecured notes due in November 2014;
--$65,000,000 series O 4.21% senior unsecured notes due in May 2015;
--$45,000,000 series P 3-month LIBOR + 160 bps senior unsecured notes due in May 2015;
--$15,000,000 series Q 3.23% senior unsecured notes due in November 2015;
--$25,000,000 series R 3.73% senior unsecured notes due in November 2017;
--$60,000,000 series S 4.4% senior unsecured notes due in November 2020;
--$40,000,000 series T 4.5% senior unsecured notes due in November 2022.

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', dated Aug. 17, 2009.
--'Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations', dated 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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