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Rating Action:

Moody's places the ratings of preferred shares issued by 12 senior loan closed-end funds on review for downgrade

12 May 2020

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

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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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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