Fitch Ratings has affirmed the 'A' Long-Term Ratings (LT Ratings) assigned to the mandatory redeemable preferred stock (MRPS) issued by
Both closed-end funds (CEFs) are advised by
KEY RATING DRIVERS
The ratings remain supported by:
Suf?cient asset coverage provided to the preferred shares as calculated per the funds' overcollateralization (OC) tests at the 'A' rating level;
The structural protections afforded by mandatory collateral maintenance and deleveraging provisions in the event of asset coverage declines;
The legal and regulatory parameters that govern the funds' operations;
The capabilities of
FUND PROFILES
BGB's primary investment objective is to seek high current income, with a secondary objective of preservation of capital, consistent with its primary goal of high current income. The fund seeks to achieve its investment objectives by investing primarily in a diversi?ed portfolio of loans and other ?xed-income instruments of predominately
BGX's primary investment objective is to provide current income, with a secondary objective of capital appreciation. The fund seeks to achieve its investment objectives by employing a dynamic long-short strategy in a diversi?ed portfolio of loans and ?xed-income instruments of predominantly
ASSET COVERAGE
As of the review date, the funds' asset coverage ratios for total outstanding preferred shares were in excess of the minimum asset coverage of 225% required by the funds' governing documents.
As of the same date, the funds' asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests per the 'A' rating guidelines outlined in Fitch's criteria (Fitch OC Tests), were in excess of the 100% minimum asset coverage guidelines required by the funds' governing documents.
STRUCTURAL PROTECTIONS
In the event the MRPS asset coverage tests decline below their minimum threshold amounts, 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 Test breaches), or by reducing leverage in a suf?cient amount (for both the Fitch OC Tests and 1940 Act asset coverage test breaches) within a prespeci?ed time period consistent with Fitch's criteria.
SUBORDINATION RISK
Certain terms exist in the funds' credit agreement that could restrict or delay payments to the MRPS shareholders if there were an Event of Default (EOD) under the agreement immediately before or after a payment to the MRPS shareholders. EODs under the creditor agreements include failure to maintain a coverage ratio of adjusted total assets to senior debt of 300% and/or a coverage ratio of total assets-to-senior debt and the MRPS of 225%.
Fitch believes the likelihood of any such payment delay to the preferred shareholders is remote. Under the terms of the credit agreements, the fund is provided a cure period to resolve any breaches of the above-noted triggers prior to the declaration of an EOD. In addition, Fitch is comfortable with the fund manager's ability to manage leverage in such a way as to avoid an EOD. However, if an EOD were to occur, Fitch believes it would be resolved in a timely manner.
MRPS dividends are cumulative in nature, disclosed to the purchasers as such, and any accrued but unpaid cumulative dividends would be captured in Fitch's OC test calculation.
INVESTMENT MANAGER
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is not currently envisioned as the funds invest largely in securities that are ineligible for credit at the 'AA' rating level.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the funds' assets, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the ratings.
The ratings could be downgraded if asset coverage cushions erode as a result of market volatility, or if Fitch believes the assets the fund invests in are unlikely to retain suf?cient liquidity and price stability at the current rating stress levels.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
SOURCES OF INFORMATION
The sources of information used to assess these ratings were the public domain and
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Prior
09258*126
LT
A
Affirmed
A
09257@125
LT
A
Affirmed
A
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