New York, May 12, 2020 -- Moody's Investors Service ("Moody's") has placed
on review for downgrade 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), 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).
Today's rating actions reflect the severe and extensive credit and
market shocks the coronavirus pandemic and falling oil prices have had
on the bank loan market. The impact of these unprecedented shocks
are clearly observable in the net asset value performance of the twelve
aforementioned senior loan closed-end funds, which have fallen
by roughly 22 percent on average over the last two months. While
the managers moved proactively to cushion their funds from the impact
of extreme market volatility by selling assets to reduce leverage and
strengthen asset coverage ratios, we expect these funds' net
asset values and asset coverage ratios to remain under pressure.
Deteriorating asset quality, rising default rates and market volatility
will challenge these funds' ability to maintain strong asset coverage
ratios. During the review period, we will focus on trends
in asset quality, bank loan market prices and secondary market liquidity
as well as the fund managers' ability and willingness 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) -- at Aa3, rating under review for downgrade
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) -- at Aa3, rating under review for downgrade
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) -- at Aa3, rating under
review for downgrade
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) -- at Aa3, rating under review for downgrade
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) -- at Aa3, rating under
review for downgrade
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) -- at Aa3, rating
under review for downgrade
Issuer: Invesco Dynamic Credit Opportunities Fund (VTA) -
Series W-7 Variable Rate Demand Preferred shares, aggregate
outstanding of $125 million (1,250 shares with a liquidation
preference of $100,000 per share) -- at Aa3, ratings
under review for downgrade
Issuer: Invesco Senior Income Trust (VVR) - Variable Rate
Demand Preferred shares, aggregate outstanding of $125 million
(1,250 shares with a liquidation preference of $100,000
per share) -- at Aa3, ratings under review for downgrade
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) -- at Aa3, rating under review for downgrade
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) -- at Aa3, rating under review for downgrade
Issuer: Nuveen Senior Income Fund (NSL) - Term preferred
shares, aggregate outstanding of $33.0 million (33,000
shares, liquidation preference of $1,000 per share)
-- at Aa3, rating under review for downgrade
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) -- at Aa3, rating
under review for downgrade
RATINGS RATIONALE
The review for downgrade reflects the breadth and severity of the economic
and market price shocks stemming from the coronavirus pandemic and falling
oil prices and their expected impact on the asset quality of these funds'
portfolios of speculative grade rated bank loans. As of February
2020, Moody's speculative grade default rate was 3.1%
but now Moody's baseline default rate for loan-only issuers
is 14.5% by the end Q1 2021. Given our expectation
for a significant increase in defaults across many sectors, we expect
to see a rise in the level of non-performing and defaulted loans
in these closed-end funds.
These risks are somewhat mitigated by fund guidelines which in some cases
place more stringent asset coverage thresholds on the funds than required
by regulation as well as the managers' observed willingness to proactively
manage funds' leverage ratios. During March's extreme
market dislocation, managers maintained prudent asset coverage by
selling assets and reducing leverage. Furthermore, Moody's
expects the default rates in these portfolios to be lower than the overall
loan market default rate during this crisis given the managers'
deep asset class experience and ability to actively manage their portfolios.
During the review period, Moody's will focus on trends in
asset quality, bank loan prices and liquidity in addition to managers'
willingness and ability to continue to manage leverage and asset coverage
ratios during periods of elevated market stress.
Eaton Vance Management -- EFF, EFR, EFT, EVF and
EVV
The review for downgrade reflects each of the funds' significant
exposure to the speculative grade senior loan market. In all the
funds, except for EVV, B-rated or lower rated loans
comprise more than 60% of the total portfolio, with Ba-rated
credits comprising the bulk of the balance. EVV has approximately
40% of its portfolio invested in B-rated or lower securities,
but it also has approximately 25% invested in government-agency
back mortgage backed securities.
The market turmoil has caused a significant decline in loan pricing to
approximately 87 in each of the funds, down from the mid-90s
pre-crisis. Despite this, the funds continue to have
strong adjusted leverage metrics that are each consistent with Aaa for
this metric. However, if defaults increase as expected during
the continuing pandemic, there will be increased pressure on the
risk-adjusted asset coverage. Moody's notes that the
experience and track record of Eaton Vance's senior portfolio managers
and the company's disciplined underwriting process, should
provide some offset to impact of mitigate these downside risks.
The funds also feature solid, albeit declining, fixed charge
coverage ratios while their portfolio profiled are weak, characterized
by limited liquidity and low credit quality, which is typical for
funds that consist almost entirely of below investment grade loans.
FACTORS THAT COULD LEAD TO A CONFIRMATION OR DOWNGRADE OF THE RATINGS:
The ratings could be confirmed if: 1) default rates remain at or
return to pre-coronavirus levels amid an economic recovery;
2) the default rates increase but successfully maintains current leverage
and risk-adjusted asset coverage remains at the Aaa level;
3) a significant decline in leverage; and 4) a sustainable increase
in fixed charge coverage.
The long-term rating assigned to the funds' outstanding 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. An upgrade of the funds' VTRP
and APS shares are unlikely given the review for downgrade.
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 review for possible downgrade reflects FSGCO's significant exposure
to the speculative grade senior loan and high-yield bond markets
as well as high energy sector concentration relative to Moody's
rated senior loan closed-end fund peers. FSGCO's portfolio
is invested primarily in low B-rated rated positions, with
a sizeable portion that is not rated.
The market turmoil has caused a significant decline in loan pricing to
approximately 85 cents on the dollar in FSGCO's portfolio,
down from the mid-90s pre-crisis. Despite this,
FSGCO continues to have strong adjusted asset coverage that is consistent
with a Aaa-level for this metric. Going into the current
crisis, FSGCO had materially lower effective leverage than Moody's
rated senior loan closed-end fund peers, which we view positively.
As the crisis unfolded, FSGCO drew down on its senior credit facilities
out of an abundance of caution, which raised effective leverage
from 20% to 30%, but FSGCO largely did not invest
the draws and instead kept the cash on hand. During the review
period, we will monitor for how FSGCO manages cash and leverage
given the portfolio concentrations noted above.
If defaults increase as expected during the continuing pandemic and lockdown,
there will be increased pressure on risk-adjusted asset coverage.
Moody's notes that the experience and track record of FSGCO's
senior portfolio managers as well as the fund's disciplined underwriting
process should help mitigate downside risks.
FSGCO maintains strong coverage of its financing costs, including
senior leverage interest expense and preferred dividend payments.
FACTORS THAT COULD LEAD TO A CONFIRMATION OR DOWNGRADE OF THE RATINGS
The ratings could be confirmed if: 1) default rates remain at or
return to pre-coronavirus levels amid an economic recovery;
2) the default rates increase but FSGCO successfully manages leverage
and risk-adjusted asset coverage consistent with the Aaa level;
3) there is a significant decline in leverage; and/or 4) there is
a sustainable increase in 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; and/or 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 review for possible downgrade of the funds' Variable Rate Demand
Preferred Shares (VRDPs) ratings is based on the funds' recent NAV
performance and their significant exposure to the senior loan market.
As of 4 May, VTA and VVR experienced year-to-date
NAV declines of 22.% and 18.1%, respectively.
Although the funds are diversified across many industries and issuers,
the breadth of the impact of the coronavirus subjects them to the effects
of the broader economic contraction. At quarter-end,
VTA and VVR had about 78% and 86%, respectively of
their portfolios allocated to senior loans. Although the bulk of
this exposure is to first-lien loans that sit atop the capital
structures of underlying issuers, our expectations of higher default
rates places the funds' ability to increase recoveries at greater
risk.
We note, however, that the funds' have reduced leverage
in response to the coronavirus induced market dislocation such that leverage
will fall below their long-term average of about 35%.
Moreover, the repositioning of the funds' portfolios has kept
risk-adjusted asset coverage strong at the Aaa-rating level.
While both funds' five year fixed charge coverage were over five
times net investment income, the annual fixed charge coverage is
just under five times net investment income. Although duration
risk is partially mitigated by the fund's senior loan holdings,
a sustained compression of the fixed charge coverage could put downward
pressure on the fund's ratings.
FACTORS THAT COULD LEAD TO A CONFIRMATION OR DOWNGRADE OF THE RATINGS
The long-term ratings assigned to the VRDP issued by VVR and VTA
could be confirmed if there is 1) a significant decline in the fund's
leverage; 2) a sustained improvement in the credit quality and liquidity
of the funds' investment portfolios; or 3) a significant expansion
in the funds' coverage of periodic payments.
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 review for possible downgrade reflects each of the funds' significant
exposure to the speculative grade senior loan market. In all of
these Nuveen funds, B-rated or lower rated loans comprise
a majority of the portfolios, with Ba-rated credits comprising
the bulk of the balance.
The market turmoil has caused a significant decline in loan pricing to
approximately 83 cents on the dollar across the funds, down from
the mid-90s pre-crisis. Despite this, the funds
continue to have strong adjusted leverage metrics that are each consistent
with Aaa for this metric.
However, if defaults increase as expected during the continuing
pandemic and lockdown, there will be increased pressure on risk-adjusted
asset coverage. Moody's notes that the experience and track
record of Nuveen's senior portfolio managers and its disciplined
underwriting process, should help mitigate downside risks.
Nuveen fund managers have demonstrated proactive deleveraging through
March 31: JFR reduced leverage by $114 million, JRO
by $78 million, NSL by $51 million and JSD by $25
million. 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 under 35%. Moody's will monitor for active
leverage management during the review period.
The funds also feature solid, albeit declining, fixed charge
coverage ratios while their portfolio profiles are weak, characterized
by limited liquidity and low credit quality, which is typical for
funds that invest almost entirely in below investment grade senior loans.
FACTORS THAT COULD LEAD TO A CONFIRMATION OR DOWNGRADE OF THE RATINGS
The ratings could be confirmed if: 1) default rates remain at or
return to pre-coronavirus levels amid an economic recovery;
2) the default rates increase but the funds successfully manage leverage
and risk-adjusted asset coverage consistent with the Aaa level;
3) there is a significant decline in leverage; and/or 4) there is
a sustainable increase in fixed charge coverage.
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 portfolio; 3)
a sustained increase in the funds' leverage; and/or 4) compression
in the funds' coverage of fixed charges.
Relative Priority of Claim
For each of these funds, senior leverage generally accounts for
more than two-thirds of the total leverage. Moody's
considers the preferred shares issued by 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.
ESG Factors
Social/Coronavirus
Our analysis has considered the effect of the coronavirus outbreak on
the US economy as well as the effects that the announced government measures,
put in place to contain the virus, will have on the performance
of the senior loan market.
The contraction in economic activity in the second quarter will be severe
and the overall recovery in the second half of the year will be gradual.
However, there are significant downside risks to our forecasts in
the event that the pandemic is not contained and lockdowns have to be
reinstated. As a result, the degree of uncertainty around
our forecasts is unusually high. We regard the coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety.
The principal methodology used in these ratings was "Securities
Issued by U.S. Closed-End Funds" published
in August 2018 and available at https://www.moodys.com/research/Securities-Issued-by-US-Closed-End-Funds--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.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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
