New York, November 20, 2012 -- Moody's Investors Service has assigned ratings of Aa1 and Aa2 to $188.9
million of Floating Rating Municipal Term Preferred Shares (MTPS) to be
issued by the DWS Municipal Income Trust (KTF) and $60.5
million of DWS Strategic Municipal Income Trust (KSM), respectively.
Both are New York Stock Exchange listed closed-end funds investing
in nationally diversified municipal obligations. The net proceeds
from each issuance will be used to purchase an equivalent amount of outstanding
remarketed and auction rate preferred shares. In the same rating
action, Moody's affirmed the existing Aa1 ratings of the Series
B, C and E remarketed preferred shares of KTF and existing Aa2 rating
of the Series T auction rate preferred shares of KSM. The ratings
are supported by the funds' strong adjusted leverage metrics,
strong to above- average portfolio profiles that differentiates
KTF from KSM, and highest fixed charge coverage ratios. At
the same time, the ratings factor in the subordinated status of
the preferred stock.
RATINGS RATIONALE
Moody's said that the 37,773 shares of Series 2015 MTPS with
a per share liquidation preference of $5,000, for a
total of $188. 9 million, to be issued out of KTF
and 2,419 shares of Series 2015 MTPS with a per share liquidation
preference of $25,000, for a total of $60.5
million to be issued by KSM, will be in the form of a 144A private
placement with a term of three years. The MTPS shares are intended
to refinance an equivalent amount of the existing remarketed preferred
shares and auction rate preferred shares that have been tendered for purchase
by current shareholders pursuant to each fund's recently expired
tender offer.
The rating agency noted that the funds' Aa1 and Aa2 ratings are
supported by each fund's strong coverage ratio that incorporates
municipal bond advance rates applied to all portfolio assets, combined
with a low risk of breaching the coverage ratio imposed by the Investment
Company Act of 1940 ('40 Act). KTF and KSM's risk adjusted
coverage ratios were calculated to be 162% and 148%,
respectively, of Moody's Aaa score for this metric when calculated
on a pro-forma basis for these refinancings. Moody's
risk adjusted coverage ratio metric is derived by applying advance rates
that discount the value of the funds' gross asset market values
and comparing the discounted value to fund leverage including tender option
bond liabilities. The funds' strong risk adjusted coverage
scores, combined with low probabilities of each fund breaching its
'40 Act regulatory coverage, contributes to the their strong
adjusted leverage profiles. The leverage profiles are reinforced
by the each fund's adoption of higher liquidation thresholds and
the creation of a structured liquidity facilities in the event of a mandatory
redemption.
The funds' portfolio profiles, which capture the credit quality
and liquidity of the fund's holdings as well as sector and issuer
diversification, reflect the funds' strategies to invest in
nationally diversified municipal securities and vary based on the average
credit quality that each fund exhibits. KTF's portfolio securities
reflect an average credit quality in the A1-range while KSM's
portfolio securities are in the A3-range. Both funds display
strong-to-very strong sector and issuer concentration metrics.
The Aa1 and Aa2 ratings of the MTPS are further supported by the strong
fixed charge coverage ratios that exceed 10X coverage, calculated
on a trailing one year and five year basis, respectively,
evidencing the funds' strong capacity to meet periodic dividend
payments from recurring earnings.
Commenting on the MTPS priority of claim, Moody's said that
the rating also reflects a one-notch downward adjustment from the
rating suggested by the key quantitative factors to reflect the weaker
position of investors holding preferred stock relative to those holding
senior unsecured debt obligations. While each fund's additional
leverage through the use of tender option bonds serve to subordinate the
outstanding MTPS and remaining preferred stock holders, the fund's
total leverage remains moderate and generally in line with national municipal
closed-end funds.
The DWS Municipal Income Trust (KTF), with gross assets of about
$864.3 million and net assets of about $761.3
million as of November 16, 2012 seeks to provide a high level of
current income exempt from Federal income tax. The fund invests
substantially all of its net assets in investment grade tax-exempt
municipal securities. Following the transactions, the fund's
leverage will remain largely unchanged at about 38% of gross assets,
consisting of preferred securities, MTPS and tender option bonds
that represent about 39% of the fund's outstanding leverage.
The DWS Strategic Municipal Income Trust (KSM), with gross assets
of about $229.2 million and net assets of about $226.5
million as of November 16, 2012 also seeks high current income exempt
from Federal income tax. The fund invests primarily in investment
grade municipal securities. Following the transactions, the
fund's leverage will remain largely unchanged at about 35%
of gross assets, consisting of preferred securities, MTPS
and tender option bonds that represent about 13% of the fund's
outstanding leverage.
Deutsche Investment Management Americas Inc. ("DIMA"),
with headquarters at 345 Park Avenue, New York, New York 10154,
is the funds' investment adviser. DIMA provides a full range
of investment advisory services to retail and institutional clients,
and as of August 31, 2012 had total assets of approximately $217.8
billion under management. DIMA is an indirect wholly owned subsidiary
of Deutsche Bank AG, a major global banking institution that is
engaged in a wide range of financial services, including investment
management, retail, private and commercial banking,
investment banking and insurance.
The principal methodology used in this rating was "Moody's Methodology
for Rating Securities Issued by U.S. Closed-End Funds"
published in May 2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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
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Henry Shilling
Senior Vice President
Managed Investments Group
Moody's Investors Service, Inc.
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Moody's assigns Aa1 and Aa2 ratings to MTPS to be issued by 2 DWS closed-end funds
