NOTE: On September 09, 2020, the press release was corrected as follows: In the first sentence of the first paragraph and in the debt list, the name of the second closed-end fund was changed to Eaton Vance Floating-Rate Income Trust. Revised release follows.
New York, September 02, 2020 -- Moody's Investors Service, ("Moody's") has
confirmed the Aa3 ratings assigned to preferred shares issued by the following
12 closed-end funds: Eaton Vance Floating-Rate Income
Plus Fund (NYSE: EFF), Eaton Vance Floating-Rate
Income Trust (NYSE: EFT), Eaton Vance Senior Floating-Rate
Trust (NYSE: EFR), Eaton Vance Senior Income Trust (NYSE:
EVF) and Eaton Vance Limited Duration Income Fund (NYSE: EVV),
FS Global Credit Opportunities Fund (FSGCO; unlisted), Invesco
Senior Income Trust (NYSE:VVR), Invesco Dynamic Credit Opportunities
Fund (NYSE: VTA), Nuveen Short Duration Credit Opportunities
Fund (NYSE: JSD), Nuveen Floating Rate Income Opportunity
Fund (NYSE: JRO), Nuveen Senior Income Fund (NYSE: NSL)
and Nuveen Floating Rate Income Fund (NYSE: JFR).
This rating action concludes the review initiated on 12 May 2020,
which was triggered by the severe and extensive shocks on the bank loan
asset class from the spread of the coronavirus pandemic and falling oil
prices. The initial impact of this unprecedented shock caused a
steep decline in these leveraged funds' net asset values and asset
coverage ratios . Furthermore, the review was supported by
our concern that deteriorating asset quality, rising default rates
and market volatility would challenge these funds' ability to maintain
strong asset coverage ratios.
The rating actions are as follows:
Issuer: Eaton Vance Floating-Rate Income Plus Fund (EFF)
- Series L-2 VRTP shares, aggregate outstanding of
$19 million (190 share, liquidation preference of $100,000
per share) -- confirmed at Aa3
Issuer: Eaton Vance Floating-Rate Income Trust (EFT)
- Series L-2 VRTP shares, aggregate outstanding of
$80.0 million (800 shares, liquidation preference
of $100,000 per share) -- confirmed at Aa3
Issuer: Eaton Vance Senior Floating Rate Trust (EFR) -- Series
A, B, C, D APS shares, aggregate outstanding of
$75.8 million (3,032 shares, liquidation preference
of $25,000 per share) -- confirmed at Aa3
Issuer: Eaton Vance Senior Income Trust (EVF) -- Series A,
B APS shares, aggregate outstanding of $37.6 million
(1,504 shares, liquidation preference of $25,000
per share) -- confirmed at Aa3
Issuer: Eaton Vance Limited Duration Income Fund (EVV) -- Series
A, B, C, D, E APS shares, aggregate outstanding
of $216 million (8,640 shares, liquidation preference
of $25,000 per share) -- confirmed at Aa3
Issuer: FS Global Credit Opportunities Fund (FSCGO) -- Series
2023 preferred shares, aggregate outstanding of $100.0
million (1,000 shares, liquidation preference of $100,000
per share) and Series 2026 preferred shares, aggregate outstanding
of $100.0 million (1,000 shares, liquidation
preference of $100,000 per share) -- confirmed at Aa3
Issuer: Invesco Senior Income Trust (VVR) - Variable Rate
Demand Preferred shares, aggregate outstanding of $100 million
(1,000 shares with a liquidation preference of $100,000
per share) -- confirmed at Aa3
Issuer: Invesco Dynamic Credit Opportunities Fund (VTA) -
Series W-7 Variable Rate Demand Preferred shares, aggregate
outstanding of $100 million (1,000 shares with a liquidation
preference of $100,000 per share) -- confirmed at Aa3
Issuer: Nuveen Short Duration Credit Opportunities Fund (JSD) -
Series A taxable preferred shares, aggregate outstanding of $70.0
million (70,000 shares, liquidation preference of $1,000
per share) -- confirmed at Aa3
Issuer: Nuveen Floating Rate Income Opportunity Fund (JRO) -
Series 2027 term preferred shares, aggregate outstanding of $45.0
million (45,000 shares, liquidation preference of $1,000
per share -- confirmed at Aa3
Issuer: Nuveen Senior Income Fund (NSL) - Term preferred
shares, aggregate outstanding of $15.0 million (15,000
shares, liquidation preference of $1,000 per share
-- confirmed at Aa3
Issuer: Nuveen Floating Rate Income Fund (JFR) - Series 2027
term preferred shares, aggregate outstanding of $55.0
million (55,000 shares, liquidation preference of $1,000
per share) and Series 2024 term preferred shares, aggregate outstanding
of $35.0 million (35,000 shares, liquidation
preference of $1,000 per share) -- confirmed at Aa3
RATINGS RATIONALE
The confirmation of the ratings at Aa3 reflects the solid recovery of
these funds' asset coverage ratios supported by the sharp rebound
in senior loan prices during the review period. Loan pricing has
rebounded to near pre-coronavirus levels, largely due to
the Federal Reserve's extensive support of the credit markets.
As a result, the funds' net asset values have rebounded significantly
and despite increased credit risk within the funds' investment portfolios,
fund credit profiles have strengthened with strong risk-adjusted
asset coverage, modestly lower fund leverage and stable fixed charge
coverage ratios, and we believe the funds should be able to maintain
these profiles.
The rating actions are further supported by the funds' managers
ability and willingness to actively manage their portfolios to improve
asset quality and reduce fund leverage with the aim of preserving asset
coverage ratios. These funds will continue to face asset quality
challenges as Moody's forecasts that the trailing 12-month
loan default rate will rise to 11.3% by March 31,
2021, up from 7.2% as of July 2020, but the
managers should be able to effectively navigate through this period of
high expected defaults.
Eaton Vance Management -- EFF, EFR, EFT, EVF and
EVV
The confirmation of the ratings for these funds reflects the strong improvements
in the funds' asset coverage ratios which helped to stabilize the
funds' credit profiles and Eaton Vance's effective management
of the funds during a period of extreme market volatility. Since
Moody's initiated its review for downgrade on 12 May 2020,
the fund NAVs have rebounded by approximately 10% and loan pricing
improved to the low-90s from the mid-80s. Furthermore,
the funds' have all maintained strong risk-adjusted asset
coverage along with stable fixed-charge coverage ratios and modestly
lower leverage.
In all the funds, except for EVV, B-rated or lower
rated loans comprise approximately 70% of the total portfolio,
but EVF's share of B or lower loans increased to 82%.
Previously, the B-rated or lower concentration was in the
mid-60% range. EVV has approximately 40% of
its portfolio invested in B-rated or lower securities, but
it also has approximately 23% invested in government-agency
back mortgage backed securities. In the event of further market
disruption, Moody's expects that Eaton Vance's skilled
and experienced senior portfolio managers will actively manage the portfolio
to maintain appropriate leverage and manage risk; therefore,
default rates in these funds should remain below that of the sector overall.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
While unlikely given the inherently weak asset profile of funds that invest
in low-rated leveraged loans, an upgrade of the VRTP and
APS shares from Aa3 would be possible under the following conditions:
1) a material reduction in leverage; 2) sustained improvement in
asset quality; or 3) a lower level of senior leverage relative to
preferred leverage.
The long-term rating assigned to the funds' VTRP and APS
shares could be downgraded if there is: 1) a sustained declined
in the funds' net asset values; 2) a deterioration in the credit
quality of the funds' investment portfolio; 3) a sustained
increase in the funds' leverage; 4) compression in the funds'
coverage of fixed charges.
Relative Priority of Claim
For each of these funds, senior leverage accounts for more than
two-thirds of the total leverage. Moody's considers
the VRTPs/APSs in these funds (less than one-third of total leverage)
to be deeply subordinated and, therefore, these funds have
been and will continue to be subject to a two-notch downward adjustment
rather than the standard one-notch adjustment.
FS Global Credit Opportunities Fund
The confirmation of the Aa3 rating assigned to FSGCO's term preferred
shares reflects the solid performance of the loan market and active management
of the fund since our review for downgrade was initiated on 12 May 2020.
Loan pricing has rebounded to near pre-coronavirus levels,
largely due to the Federal Reserve's extensive support of the credit
markets. Despite increased credit risk at the individual loan level,
FSGCO continues to exhibit strong risk-adjusted asset coverage,
low effective leverage at 28% and strong coverage of its financing
costs, including senior leverage interest expense and preferred
dividend payments. Going into the coronavirus crisis, FSGCO
had materially lower effective leverage than Moody's rated senior
loan closed-end fund peers, which helped it manage through
this period of extreme market volatility.
The fund has been deploying capital into more higher-quality,
defensive positions over the past few months and continues to actively
trade up the capital structure. The latter has been occurring over
the past several quarters, well before the coronavirus outbreak
started. Senior debt investments now account for 84% of
the portfolio as of June 30, up from 77% at year-end
2019 and 71% at year-end 2018. Positively,
since March, the share of rated positions in the portfolio has increased
to 75% from 72%, while the average rating has improved
slightly.
If defaults increase as expected, there will be increased pressure
on risk-adjusted asset coverage. Moody's notes,
however, that the experience and track record of FSGCO's senior
portfolio managers as well as the fund's increased exposure to higher
quality senior positions and disciplined underwriting process should help
mitigate downside risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
While unlikely given the inherently weak asset profile of funds that invest
in low-rated leveraged loans, an upgrade of from Aa3 would
be possible under the following conditions: 1) a material reduction
in leverage; 2) sustained improvement in asset quality; or 3)
sustained high fixed charge coverage.
The ratings could be downgraded if there is 1) a sustained decline in
the risk adjusted asset coverage ratio; 2) an increase in the fund's
leverage ratio to the mid 30% range; 3) a deterioration in
the credit quality of the investment portfolio; 4) compression in
the fund's coverage of fixed charges.
Relative Priority of Claim
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. A one-notch downward adjustment from the rating
suggested by the key factors is applied to FSGCO's preferred securities
to reflect the weaker position of investors holding preferred stock relative
to those holding senior unsecured debt obligations.
Invesco Funds -- VTA, VVR
The Aa3 rating on the VRDPs issued by VTA and VVR reflects the funds'
reduced leverage, repositioning of their investment portfolios to
higher quality holdings and less cyclical sectors, as well as their
strong risk-adjusted asset coverage scores.
The funds, although diversified across many industries and issuers,
are exposed to first-lien loans that are expected to experience
higher default rates this year. However, the increasing trend
of fund sponsors taking on a more active role in bankruptcy negotiations
in order to secure their interests may increase recoveries.
The funds are currently being managed with lower effective leverage targets
ranging in the low to mid 30%. As a result, the additional
notch formerly applied to the preferred ratings reflecting their subordination
to a greater proportion of senior debt is no longer warranted.
However, VTA and VVR have up to $325 million and $275
million, respectively, of total capacity available on their
revolving credit facilities. We make a qualitative adjustment to
their adjusted leverage scores to reflect their ability to draw on these
facilities and change the complexion of their capital structures.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
While unlikely given the inherently weak asset profile of funds that invest
in low-rated leveraged loans, an upgrade from Aa3 would be
possible under the following conditions: 1) a material reduction
in leverage; 2) sustained improvement in asset quality; or 3)
a lower level of senior leverage relative to preferred leverage.
Conversely, the long-term ratings of the funds' outstanding
VRDPs could be downgraded if there is 1) a significant increase in the
fund's leverage; or 2) a sustained decline in the fund's
net asset value; or 3) deterioration in the credit quality of the
fund's investment portfolio; or 4) compression in the coverage
of the fund's fixed charges.
Nuveen Funds -- JSD, JRO, NSL, and JFR
The confirmation of the Aa3 preferred ratings associated with the Nuveen
senior loan closed-end funds reflects the solid performance of
the loan market and the active management of the funds since our review
for downgrade was initiated in May. Loan pricing has rebounded
to near pre-coronavirus levels, largely due to the Federal
Reserve's extensive support to the credit markets. Despite
increased credit risk at the individual loan level, the Nuveen senior
loan closed-end funds continue to exhibit strong risk-adjusted
asset coverage, continued low effective leverage and solid coverage
of financing costs, including senior leverage interest expense and
preferred dividend payments.
If defaults increase as expected, there will be increased pressure
on risk-adjusted asset coverage. However, Moody's
notes that the experience and track record of Nuveen's senior portfolio
managers, and their disciplined underwriting process, should
help mitigate the downside risks. Further, Nuveen's
portfolio managers have demonstrated willingness and ability to proactively
delever the funds. JFR, JRO, NSL , and JSD each
materially reduced leverage during the height of the coronavirus crisis
period in Q1. All told, the median effective leverage ratio
for these funds fell to 36% at the end of March from 39%
at the end of February. Currently, effective leverage across
the funds is 36%.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
While unlikely given the inherently weak asset profile of funds that invest
in low-rated leveraged loans, an upgrade from Aa3 would be
possible under the following conditions: 1) a material reduction
in leverage; 2) sustained improvement in asset quality; or 3)
a lower level of senior leverage relative to preferred leverage.
The ratings could be downgraded if there is 1) a sustained decline in
the funds' risk adjusted asset coverage ratios; 2) a deterioration
in the credit quality of the funds' investment portfolios;
3) a sustained increase in the funds' leverage; 4) compression
in the funds' coverage of fixed charges.
Relative Priority of Claim
Senior leverage generally accounts for more than two-thirds of
the total leverage for the Nuveen senior loan closed-end funds.
Moody's considers preferred shares that account for less than one-third
of total leverage to be deeply subordinated and, therefore,
these funds have been and will continue to be subject to a two-notch
downward adjustment rather than the standard one-notch adjustment.
The principal methodology used in these ratings was "Securities
Issued by US Closed-End Funds" published in August 2018 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125868.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main
60322, Germany, 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 issued the credit rating is available on www.moodys.com.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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, CFA
VP - Senior Credit Officer
Structured Finance 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
