Fitch Rates Tortoise MLP Fund Notes and Pfd Stock; Affirms Existing Notes' and Pfd Stock Rating
Fitch Ratings assigns an 'AA' rating to the following series of
mandatory redeemable preferred shares (MRPS) and an 'AAA' rating to the
following series of notes issued by Tortoise MLP Fund (NYSE: NTG), a
registered closed-end fund managed by Tortoise Capital Advisors, LLC
(Tortoise). Fitch also affirms ratings on the fund's existing notes as
listed at the bottom of this press release.
--$5,000,000 series C 3.73% MRPS due on Dec. 8, 2020 at 'AA';
--$40,000,000 series D 4.19% MRPS due on Dec. 8, 2022 at 'AA';
--$20,000,000 series L floating rate notes due on Apr. 17, 2021 at 'AAA';
--$10,000,000 series M 3.06% notes due on Apr. 17, 2021 at 'AAA'.
KEY RATING DRIVERS
The rating assignments and affirmations reflect:
--Sufficient asset coverage provided to senior notes and MRPS as
calculated per the fund's asset coverage tests;
--The structural protections afforded by mandatory collateral
maintenance and de-leveraging provisions in the event of asset coverage
declines;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of Tortoise Capital Advisors, LLC as investment
advisor.
FUND'S PROFILE
NTG 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 the majority of
portfolio in equity securities of publicly-traded Master Limited
Partnerships (MLP) and their affiliates in the energy infrastructure
sector. These companies gather, transport, process, store, distribute or
market natural gas, natural gas liquids, coal, crude oil, refined
petroleum products or other natural resources, or explore, develop,
manage or produce such commodities.
FUND LEVERAGE
NTG manages a portfolio of approximately $1,620.9 million in assets and
utilized $508 million in leverage as of Oct. 31, 2015. The total
leverage ratio is approximately 32%. Pro forma leverage consists of
approximately $69.8 million in bank borrowings, $329 million in
Fitch-rated senior notes (pari-passu to the bank borrowings), and $110
million in junior Fitch-rated MRPS.
ASSET COVERAGE
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, outlined in Fitch's closed-end fund criteria,
were in excess of 100%. These are the minimum asset coverage guideline
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
rating.
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 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's managers are 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's managers are 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).
THE ADVISOR
Tortoise, a wholly owned subsidiary of Tortoise Holdings, 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 Oct. 31, 2015, it had approximately $14.6 billion in assets
under management. Montage Asset Management, LLC, a wholly-owned entity
of Mariner Holdings, LLC owns approximately 61% of Tortoise Holdings,
LLC, with the remaining interest held by certain senior Tortoise
employees.
RATING AFFIRMATIONS
Fitch affirms the following ratings:
--$24,000,000 3.14% Series B notes due on Dec. 15, 2015 at 'AAA';
--$57,000,000 3.73% Series C notes due on Dec. 15, 2017 at 'AAA';
--$112,000,000 4.29% Series D notes due on Dec. 15, 2020 at 'AAA';
--$25,000,000 Series E floating rate notes due on Dec. 15, 2015 at 'AAA';
--$10,000,000 4.35% Series G notes due on May 12, 2018 at 'AAA';
--$45,000,000 Series H floating rate notes due April 17, 2019 at 'AAA';
--$10,000,000 2.77% Series I notes due April 17, 2018 at 'AAA';
--$30,000,000 3.72% Series J notes due April 17, 2021 at 'AAA';
--$35,000,000 Series K notes due Sept. 09, 2019 at 'AAA';
--$25,000,000 of series A MRPS due Dec. 15, 2015 at 'AA';
--$65,000,000 of series B MRPS due Dec. 15, 2017 at 'AA'.
In addition, Fitch expects the following series to be paid in full at
maturity and will be marked as paid in full at that time:
--$24,000,000 3.14% Series B notes due on Dec. 15, 2015;
--$25,000,000 of series A MRPS due Dec. 15, 2015;
--$25,000,000 Series E floating rate notes due on Dec. 15, 2015.
RATING SENSITIVITIES
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:
http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/
Additional information is available at www.fitchratings.com.
The sources of information used to assess this rating were the public
domain and Tortoise Capital Advisors.
Applicable Criteria
Rating Closed-End Fund Debt and Preferred Stock (pub. 16 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871119
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996375
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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