New York, September 17, 2018 -- Moody's Investors Service ("Moody's") has today
affirmed the Aa3 ratings of the auction preferred shares ("APS")
issued by Eaton Vance Limited Duration Income Fund (NYSE: EVV),
Eaton Vance Senior Floating-Rate Trust (NYSE: EFR),
and Eaton Vance Senior Income Trust (NYSE: EVF) following a tender
offer that has reduced the outstanding APS in each fund.
For the tender offer, EVV, EFR and EVF will repurchase up
to 19%, 21% and 39% , respectively,
of their APS at a price per share equal to 92% of the APS liquidation
preference of $25,000 per share (or $23,000
per share), plus any unpaid APS dividends accrued through the tender
date. In each case, the senior leverage will be increased
to offset the repurchased APS. Total leverage remains the same.
RATINGS RATIONALE
The ratings affirmations reflect that the tender offers will not impact
the funds' asset compositions, investment objectives,
or total leverage. However, the composition of financing
will change and the APS will be less than one-third of total leverage
for EFR and EVF. Moody's considers the junior securities
in such cases to be deeply subordinated and typically applies a two notch
downward adjustment instead of one notch. Despite the two notch
adjustment for EVF and EFR, the funds' credit characteristics
are strong enough to maintain the current ratings. EVV's
proportion of APS was already under one-third before this transaction
and the Aa3 rating already reflects a two notch downward adjustment.
Each of the funds has strong adjusted leverage metrics and solid,
albeit declining, fixed charge coverage ratios, reflecting
rising interest rates. These strengths are partly offset by weak
portfolio profiles for EVF and EFR, characterized by limited liquidity
and low credit quality, which is typical for funds that consist
almost entirely of below investment grade loans. EVV, which
consistently has over 20% of its portfolio invested in high quality
U.S. Government Agency-backed securities, consequently
has a more liquid portfolio profile.
The Aa3 ratings of the APS for the three funds have been supported historically
by consistently strong coverage of fixed charges, demonstrating
their ability to meet periodic dividend payments from recurring earnings.
With the increase in interest rates over the past two years - LIBOR
has increased from 0.85% as of September 30, 2016
to low 2.30% range in recent weeks - fixed charges
have increased dramatically. Still, pro-forma coverage
for EVV and EVF is in the Aa range while EFR coverage remains consistent
with a Aaa score for this key scorecard factor. We also note that
interest rate risk is mitigated by the floating rate nature of the bank
loan investments. However, further compression of the fixed
charge coverage ratios, if sustained, could pressure the Aa3
ratings of each of the funds.
Relative Priority of Claim
The Aa3 ratings in each case reflect a two-notch downward adjustment.
One notch reflects the weaker position of investors holding preferred
stock relative to senior unsecured debt obligations and the second notch
reflects the fund's substantial senior leverage from consistent borrowings
under its million revolving bank credit facility that, in Moody's
view, serves to subordinate the standing of APS holders.
Eaton Vance Management is the investment adviser for EVV, EVF and
EFR, responsible for determining its overall investment strategy.
The Following is a list of rating actions related to EVV, EVF and
EFR:
EVV
- APS series A,B,C,D and E, aggregate outstanding
of $216 million (8,640 shares, liquidation preference
of $25,000 per share) -- affirmed at Aa3
EFR
- APS series A,B,C and D, aggregate outstanding
of $75.8 million (3,032 shares, liquidation
preference of $25,000 per share -- affirmed
at Aa3
EVF
- APS series A and B, aggregate outstanding of $37.6
million (1,504 shares, liquidation preference of $25,000
per share) -- affirmed at Aa3
The principal methodology used in these ratings was "Securities
Issued by U.S. Closed-End Funds" published
in August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Dean Ungar
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653