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Rating Action:

Moody's confirms the ratings of preferred shares issued by 12 senior loan closed-end funds

02 Sep 2020

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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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