New York, March 24, 2016 -- Moody's Investors Service, Inc. ("Moody's")
has assigned ratings to new Variable Rate MuniFund Term Preferred Shares
(VMTP Shares) issued by five closed-end funds advised by MFS Investment
Management, as follows:
National Municipal Funds
- MFS Municipal Income Trust (MFM), $113.75
million (Series 2019/3, 4,550 shares with a liquidation preference
of $25,000 per share) - Aa2
- MFS Investment Grade Municipal Trust (CXH), $48.75
million (Series 2019/3, 1,950 shares at a liquidation preference
of $25,000 per share) - Aa1
- MFS High Income Municipal Trust (CXE), $97.50
million (Series 2019/3, 3,900 shares at liquidation preference
of $25,000 per share) - Aa2
- MFS High Yield Municipal Trust (CMU), $75.00
million (Series 2019/3, 3,000 shares at liquidation preference
of $25,000 per share) - Aa2
State-specific Municipal Fund
- MFS California Municipal Fund (CCA), $24.425
million (Series 2019/3, 977 shares with a liquidation preference
of $25,000 per share) - Aa2
Net proceeds from each fund's VMTP Shares issuance will be used
to redeem each Fund's outstanding Series 2016/9 VMTP Shares and
any outstanding Municipal Auction Rate Cumulative Preferred Shares ("ARPS"),
and for other purposes.
RATINGS RATIONALE
The long-term ratings are based on the Funds' adjusted leverage,
portfolio profiles and fixed charge coverage, as calculated by Moody's,
combined with an assessment of the preferred shares' relative priority
of claim.
Adjusted Leverage
MFM's risk adjusted asset coverage ratio is strong at 177%
and the risk of an Investment Company of 1940 Act ('40 Act) breach
is low, at 6.7 times gross asset volatility, as calculated
by Moody's, based on the portfolio's historic volatility
and leverage, consistent with a score of Aaa.
CXH's risk adjusted asset coverage ratio is strong at 146%
and the risk of an Investment Company of 1940 Act ('40 Act) breach
is low, at 5.2 times gross asset volatility, as calculated
by Moody's, based on the portfolio's historic volatility
and leverage, consistent with a score of Aaa.
CXE's risk adjusted asset coverage ratio is strong at 138%
and the risk of an Investment Company of 1940 Act ('40 Act) breach
is low, at 5.7 times gross asset volatility, as calculated
by Moody's, based on the portfolio's historic volatility
and leverage, consistent with a score of Aaa.
CMU's risk adjusted asset coverage ratio is strong at 140%
and the risk of an Investment Company of 1940 Act ('40 Act) breach
is low, at 6.9 times gross asset volatility, as calculated
by Moody's, based on the portfolio's historic volatility
and leverage, consistent with a score of Aaa.
CCA's risk adjusted asset coverage ratio is strong at 146%
and the risk of an Investment Company of 1940 Act ('40 Act) breach
is low, at 5.2 times gross asset volatility, as calculated
by Moody's, based on the portfolio's historic volatility
and leverage, consistent with a score of Aaa.
Portfolio Profile
MFM's portfolio profile, which captures the credit quality
and liquidity of the fund's holdings, reflects the above average
quality of municipal holdings that are invested nationally across various
general obligations, tax obligations, revenue bonds,
pre-refunded bonds and other security types. MFM's
portfolio has a weighted average credit quality of Baa2, which is
slightly weaker than our expectation for an Aa2 rated national municipal
bond fund.
CXH's portfolio profile, which captures the credit quality
and liquidity of the fund's holdings, reflects the strong
quality of national municipal holdings that are invested across various
general obligations, tax obligations, revenue bonds,
pre-refunded bonds and other security types. CXH's
portfolio has a weighted average credit quality of A1.
CXE's portfolio profile, which captures the credit quality
and liquidity of the fund's holdings, reflects the above average
quality of national municipal holdings that are invested across various
general obligations, tax obligations, revenue bonds,
pre-refunded bonds and other security types. CXE's
portfolio has a weighted average credit quality of Baa1.
CMU's portfolio profile, which captures the credit quality
and liquidity of the fund's holdings, reflects the above average
quality of national municipal holdings that are invested across various
general obligations, tax obligations, revenue bonds,
pre-refunded bonds and other security types. CMU's
portfolio has a weighted average credit quality of Baa1.
CCA's portfolio profile, which captures the credit quality
and liquidity of the fund's holdings, reflects the strong
quality of state-specific municipal holdings that are invested
across various general obligations, tax obligations, revenue
bonds, pre-refunded bonds and other security types.
CCA's portfolio has a weighted average credit quality of A2.
Fixed Charge Coverage
The fixed charge coverage ratio of MFM's portfolio is calculated
at 11.9 times when calculated on a trailing one-year basis.
This demonstrates MFM's high capacity to meet periodic interest
payments from recurring earnings.
The fixed charge coverage ratio of CXH's portfolio is calculated
at 10.0 times when calculated on a trailing one-year basis.
This demonstrates CXH's high capacity to meet periodic interest
payments from recurring earnings.
The fixed charge coverage ratio of CXE's portfolio is calculated
at 8.6 times when calculated on a trailing one-year basis.
This demonstrates CXE's high capacity to meet periodic interest
payments from recurring earnings.
The fixed charge coverage ratio of CMU's portfolio is calculated
at 9.0 times when calculated on a trailing one-year basis.
This demonstrates CMU's high capacity to meet periodic interest
payments from recurring earnings.
The fixed charge coverage ratio of CCA's portfolio is calculated
at 6.1 times when calculated on a trailing one-year basis.
This demonstrates CCA's high capacity to meet periodic interest
payments from recurring earnings.
Relative Priority of Claim
In addition to assessing the key rating factors described above,
Moody's considers the priority of claim of a fund's specific security
types and any other qualitative factors relevant to the fund's credit
profile. In the case of preferred securities, which is the
instrument class associated with this rating, a one-notch
downward adjustment from the senior rating profile suggested by the key
factors is made to reflect the subordinate position of investors holding
preferred stock relative to holders of senior secured debt obligations.
We adhere to this priority of claim notching even when the issuing closed
end fund has no outstanding senior secured debt obligations.
MFS Investment Management ("MFS") is the investment advisor
for the funds, responsible for determining their overall investment
strategy. MFS Investment Management and its affiliates had approximately
$395 billion of assets under management as of 29 February,
2016.
The principal methodology used in these ratings was "Securities
Issued by U.S. Closed-End Funds" published
in March 2015. Please see the Ratings 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.
Neal M. Epstein, CFA
VP - Senior Credit Officer
Managed Investments Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Marc R. Pinto, CFA
MD - Managed Investments
Managed Investments Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns ratings to VMTP shares issued by five MFS Investment Management closed-end funds