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Global Credit Research - 23 Feb 2011
Approximately $287 million preferred shares issued to retire auction rate securities
New York, February 23, 2011 -- Moody's assigned Prime-1 short-term and Aaa long-term
ratings to $287.1 million Variable Rate Demand Preferred
Shares (VRDP) being issued by BlackRock Muni Intermediate Duration Fund,
The short-term ratings, which address Moody's expectation
of timely repayment of liquidation preference of the VRDP in the event
of an optional or mandatory tender, are based upon the unconditional
VRDP liquidity purchase agreement provided by JPMorgan Chase Bank,
N.A. for MUI, the structure of the transaction and
credit worthiness of the bank providing the VRDP liquidity purchase agreement.
Moody's long-term ratings assigned to the VRDP addresses the fund's
ability to honor optional or mandatory redemptions as well as its ability
to meet its dividend obligations and is based upon the fund's strong
coverage of Moody's overcollateralization ratios. In addition,
the long-term ratings factor in the Investment Company Act of 1940
(1940 Act) asset coverage ratio requirement that are all substantially
in excess of the preferred share obligations, adherence to conservative
asset coverage maintenance provisions, and deleveraging procedures
in the event of a coverage ratio breach as well as BlackRock's effective
portfolio management practices with regard to the fund.
The short-term ratings assigned to VRDP address the credit quality
of liquidity provider and unconditional nature of the VRDP liquidity purchase
The Prime-1 ratings reflect Moody's assessment that VRDP holders
will be able to tender their shares unconditionally in a timely manner
given the terms of the VRDP liquidity purchase agreement provided by JPMorgan
Chase Bank, N.A. (currently rated Aa1/P-1)
for MUI. The liquidity provider agrees to purchase the rated shares
on any business day with a 7-day tender notice in a failed remarketing
. As such, Moody's short-term ratings associated with
the VRDP are linked to the creditworthiness of the liquidity provider
and may change whenever the short-term rating of the liquidity
provider is changed. The VRDP liquidity purchase agreement has
no automatic termination events or conditions precedent to funding,
making it an unconditional agreement to purchase tendered but unremarketed
shares pursuant thereto. The Prime-1 ratings will expire
upon the earlier of the termination of the VRDP liquidity purchase agreement
or December 28, 2012 .
In addition, Moody's cites the inclusion of mandatory tender events
to address any unscheduled termination of the VRDP liquidity purchase
agreement. The occurrence of these events would put in motion a
notification process whereby VRDP holders are apprised of a mandatory
tender. Included in the mandatory tender events are the:
(i) downgrade of the liquidity provider rating to Prime-3;
(ii) failure of the fund to pay scheduled dividends; (iii) breach
of an effective leverage covenant continued for 60-days; (iv)
an extraordinary corporate event affecting the liquidity provider;
(v) failure of the fund to remit fees to the liquidity provider for services
rendered (if the liquidity provider consents to declaring as a mandatory
tender event), (vi) the notification of a special rate period,
and (vii) substitution of the liquidity provider. The liquidity
provider also has a mandatory purchase obligation with respect to all
outstanding VRDP shares upon termination of the VRDP liquidity purchase
Once the VRDP shares are tendered to the liquidity provider, either
through an optional or a mandatory tender, or mandatory purchase,
the liquidity provider has no automatic termination events or "outs" which
would allow the liquidity provider not to fund the tender. The
liquidity provider and any other holder of VRDP shares benefits from a
heightened dividend rate mechanism. The increased rate mechanism
is linked to a base rate plus applicable spread that systematically increases
over time during the failed remarketing period. The dividend rate
is linked to the long term rating assigned to the VRDP shares and is subject
to a maximum of 15%. The increased rate incentivizes new
holders to bid for VRDP shares thus increasing the likelihood of a successful
remarketing. The liquidity provider has the right to put back the
VRDP shares to the fund after it has held them for a continuous period
of six months, either after scheduled termination of the liquidity
purchase agreement or continued failure of the remarketing process.
VRDP shareholders will have the option to tender their VRDP shares for
remarketing and purchase on any business day not less than seven days
after delivery of a notice of tender to a tender and paying agent appointed
by MUI, with the consent of the liquidity provider, at the
purchase price. The remarketing agent will use its best efforts
to remarket any VRDP shares so tendered. In the event no remarketing
occurs on or before the relevant purchase date, or VRDP shares remain
unsold pursuant to an attempted remarketing, the tender and paying
agent will deliver all unsold VRDP shares to the liquidity provider for
purchase on such purchase date.
Proceeds from the VRDP Shares issuance will be used to defease and redeem
in full the fund's outstanding auction rate preferred shares (ARPS).
Pending the redemption following the required notice period, the
Aaa ratings assigned to the fund's ARPS shares are affirmed. The
leverage levels for MUI are expected to remain at or near its current
levels at 40% of the managed assets.
Long term ratings assigned to VRDP address the full and timely payment
of dividends and liquidation preference amounts upon redemption.
The Aaa rating, which is coupled to mandatory tender events in case
of an uncured basic maintenance amount (BMA) coverage breach addresses
the ultimate repayment after the expiration of 6 month holding period
following mandatory purchase by the liquidity provider. The rating
reflect the fund's modest leverage, Moody's strong coverage
ratios combined with asset maintenance procedures that require funds to
delever in the event the discounted values of portfolio assets decline
below the preferred shares par amounts. This is in addition to
the limitations and asset coverage testing requirements superimposed by
the 1940 Act which limit leverage in the form of preferred stock to an
asset coverage ratio of 200%. These guideposts work in tandem
to reinforce coverage sufficiency for the VRDP in connection with the
In addition, the liquidity profile of the portfolio is consistent
with the collateral discount factors that seek to simulate price declines
in the event of a forced liquidation of assets to meet a mandatory redemption.
Moody's historical asset coverage levels for the fund, since inception,
have not declined below the Moody's BMA threshold of 100% for Aaa
rated instruments with exposure periods of seven weeks. The credit
quality of portfolio assets, with over 88% of portfolio assets
invested in investment grade securities, and strategies to diversify
by issuer and sector, also support the strong asset coverage levels.
That said, Moody's long-term ratings may change if asset
coverage levels decline or in the event that future capital structure
changes that restrict the fund's ability to meet preferred shares optional
or mandatory redemptions.
At the time of their issuance, asset coverage levels for MUI were,
Moody's (>100%) 1940 Act (>200%)
BlackRock Muni Intermediate Duration Fund, Inc (MUI) 142%
BlackRock Advisors LLC, is the investment adviser for the funds,
responsible for determining the fund's overall investment strategy.
BlackRock had approximately $3.561 trillion of assets under
management as of December 31, 2010, of which approximately
$22 billion was in municipal closed end funds.
The ratings assigned to the VRDP are not recommendations to purchase,
hold or sell those shares or their suitability for a particular investor.
Also, Moody's ratings applicable to the preferred stock addresses
the full-liquidation-preference amount paid upon redemption,
either due to a mandatory or voluntary redemption, including the
distribution of the fund assets upon liquidation. The ratings also
address the full and timely payment of dividends, subject to rate
periods that could change from time to time due to special-rate
period designations and appropriate notices/conventions.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's Analytics
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Managed Investments Group
Moody's Investors Service
Senior Vice President
Managed Investments Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns Aaa/P-1 Ratings to Variable Rate Demand Preferred Shares to be issued by BlackRock Muni Intermediate Duration Fund, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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