Fitch Ratings affirms its 'AAA' ratings on the following senior
unsecured notes (the notes) and 'AA' ratings on one series of preferred
shares issued by Tortoise Pipeline & Energy Fund (NYSE MKT: TTP):
--$10,000,000 of series A floating rate senior unsecured notes due Dec.
--$6,000,000 of series C 3.49% senior unsecured notes due Dec. 15, 2018;
--$16,000,000 of series D 4.08% senior unsecured notes due Dec. 15,
--$10,000,000 of series E floating rate senior unsecured notes due Dec.
--$6,000,000 of series F 3.01% senior unsecured notes due Dec. 12, 2020;
--$6,000,000 of series G floating rate senior unsecured notes due Dec.
--$16,000,000 of series A MRPS 4.29% due Dec. 15, 2018 at 'AA'.
KEY RATING DRIVERS
The rating affirmations reflect:
--Sufficient asset coverage provided to senior notes and mandatory
redeemable preferred stock MRPS as calculated per the fund's asset
--The structural protections afforded by mandatory collateral
maintenance and de-leveraging provisions in the event of asset coverage
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of Tortoise Capital Advisors, LLC as investment
TTP is a non-diversified, closed-end management investment company with
an investment goal of obtaining a high level of total return with an
emphasis on current distributions. The fund invests primarily in equity
securities of pipeline companies that transport natural gas, natural gas
liquids (NGLs), crude oil and refined products and, to a lesser extent,
in other energy infrastructure companies.
TTP manages a portfolio of approximately $286 million in assets and
utilized approximately $87 million in leverage as of Nov. 30, 2015. The
total leverage ratio is approximately 30%. Leverage consists of $16.9
million in bank borrowings, $54 million in Fitch-rated senior notes
(pari passu to the bank borrowings), and $16 million in junior
The fund's asset coverage ratio, as calculated in accordance with the
Fitch total and net overcollateralization tests (Fitch OC tests) per the
'AAA' rating guidelines for the senior notes and the 'AA' rating
guidelines for the MRPS, as outlined in Fitch's closed-end fund
criteria, were in excess of 100%. These are the minimum asset coverage
guidelines required by the fund's governing documents.
The Fitch OC tests calculate standardized asset coverage by applying
haircuts to portfolio holdings based on riskiness and diversification of
the assets and measuring their ability to cover both on- and off-balance
sheet liabilities at the stress level that corresponds to the assigned
The fund's asset coverage ratio for the senior notes, as calculated in
accordance with the Investment Company Act of 1940 (1940 Act) at current
market value, was in excess of 300%. The fund's pro forma asset coverage
ratio for total leverage, including the MRPS, as calculated in
accordance with the 1940 Act also at current market value, was in excess
of 200%. These are the minimum asset coverage ratios required by the
fund's governing documents.
NOTES' STRUCTURAL PROTECTIONS
Should the asset coverage tests decline below their minimum threshold
amounts (as tested on the last business day of each week), under the
terms of the senior notes the fund is required to deliver notice to the
note purchasers within five business days. The fund manager is then
expected to cure the breach by altering the composition of the portfolio
toward assets with lower discount factors (for Fitch OC Tests breaches),
or by reducing leverage in a sufficient amount (for both the Fitch OC
Tests and the 1940 Act test breaches) within a pre-specified time period
(a maximum of 47 calendar days for the Fitch OC Tests and a longer
period for the 1940 Act test).
Failure to cure an asset coverage breach as described above is an event
of default under the terms of the notes. The fund must then deliver a
notice within five business days to the senior note purchasers and a
majority vote of note purchasers may then declare all the notes then
outstanding to be immediately due and payable.
The fund is also prohibited from paying out a common stock dividend if
it fails to cure a breach to the notes' 300% 1940 Act asset coverage
test. Fitch views this as an added incentive to cure and deleverage in a
timely manner, regardless of acceleration by the notes purchasers.
MRPS STRUCTURAL PROTECTIONS
Should the MRPS Asset Coverage Test and Fitch OC Test decline below
their minimum threshold amounts (as tested weekly) the fund is required
to deliver notice to the MRPS purchasers within five days of becoming
aware of such fact.
The fund manager is required to cure the breach by altering the
composition of the portfolio toward assets with lower discount factors
(for Fitch OC Tests breaches), or by reducing leverage in a sufficient
amount (for both the Fitch OC Tests and Asset Coverage Test breaches)
within a pre-specified time period (a maximum of 47 calendar days).
Tortoise, a wholly owned subsidiary of Tortoise Investments, LLC, is the
fund's investment adviser, responsible for the fund's overall investment
strategy and its implementation. The advisor was formed in October 2002
and, as of Nov. 30, 2015, it had approximately $13.5 billion in assets
under management. Montage Asset Management, LLC, a wholly-owned entity
of Mariner Holdings, LLC, owns approximately 61% of Tortoise
Investments, LLC, with the remaining interest held by certain senior
The rating is based on the terms stipulating mandatory collateral
maintenance and de-leveraging provisions in the event of asset coverage
declines. In the case of the rated notes, should the fund fail to cure
an asset coverage breach, or the note purchasers not declare the notes
due and payable upon an event of default, this may lengthen exposure to
market value risk and cause the ratings to be lowered by Fitch.
The ratings may also be sensitive to material changes in the credit
quality or market risk profile of the fund. A material adverse deviation
from Fitch guidelines for any key rating driver could cause the ratings
to be lowered by Fitch.
For additional information about Fitch closed-end fund ratings
guidelines, please review the criteria referenced below, which can be
found on Fitch's website.
To receive forthcoming complimentary closed-end fund research from
Fitch, opt-in at the following link:
Additional information is available on www.fitchratings.com
Rating Closed-End Fund Debt and Preferred Stock (pub. 16 Sep 2015)
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