Fitch Affirms Tortoise Energy Infrastructure Corp. Notes at 'AAA' & MRPS at 'AA'
Fitch Ratings has affirmed the 'AAA' ratings assigned to the senior
secured notes (notes) and 'AA' ratings assigned to the mandatory
redeemable preferred shares (MRPS) issued by the Tortoise Energy
Infrastructure Corp. (NYSE MKT: TYG). A complete list of the associated
ratings is included at the end of this press release.
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 PROFILE
TYG is a non-diversified, closed-end management investment company with
the goal of obtaining a high level of total return with an emphasis on
current distributions. The fund invests the majority of its portfolios
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
TYG manages a portfolio of approximately $2.2 billion in assets and had
leverage of $690 million as of Feb. 29, 2016. The total leverage ratio
is approximately 31%. Leverage consists of approximately $70 million in
bank borrowings, $455 million in Fitch-rated senior notes (pari passu to
the bank borrowings), and $165 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%, which is the minimum asset coverage required by
the fund' governing documents.
The Fitch OC tests calculate asset coverage by applying haircuts to
portfolio holdings based on expected volatility 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 values, 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 values, was in
excess of 225%.
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 assigned ratings
assume that senior noteholders would declare the notes due and payable
if the fund fails to cure an asset coverage breach.
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 or 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 Feb. 29, 2016 it had approximately $12 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:
Tortoise Energy Infrastructure Corporation (TYG):
--$12,500,000 Series W senior notes 3.88% due on June 15, 2016 at 'AAA';
--$30,000,000 Series G senior notes 5.85% due on Dec. 21, 2016 at 'AAA';
--$13,000,000 Series M senior notes 2.75% due on Sept. 27, 2017 at 'AAA';
--$12,000,000 Series BB senior notes 2.75% due on Sept. 27, 2017 at
'AAA';
--$10,000,000 Series I senior notes 4.35% due on May 12, 2018 at 'AAA';
--$12,500,000 Series X senior notes 4.55% due on June 15, 2018 at 'AAA';
--$10,000,000 Series N senior notes 3.15% due on Sept. 27, 2018 at 'AAA';
--$15,000,000 Series CC senior notes 3.48% due on Sept. 27, 2019 at
'AAA';
--$15,000,000 Series J senior notes 3.30% due on Dec. 19, 2019 at 'AAA';
--$12,500,000 Series Y senior notes 2.77% due on June 14, 2020 at 'AAA';
--$20,000,000 Series LL senior floating rate notes due on June 14, 2020
at 'AAA';
--$15,000,000 Series O senior notes 3.78% due on Sept. 27, 2020 at 'AAA';
--$12,500,000 Series Z senior notes 2.98% due on June 14, 2021 at 'AAA';
--$25,000,000 Series R senior notes 3.77% due on Jan. 22, 2022 at 'AAA';
--$13,000,000 Series DD senior notes 4.21% due on Sept. 27, 2022 at
'AAA';
--$10,000,000 Series II senior notes 3.22% due on Dec. 18, 2022 at 'AAA';
--$10,000,000 Series K senior notes 3.87% due on Dec. 19, 2022 at 'AAA';
--$10,000,000 Series S senior notes 3.99% due on Jan. 22, 2023 at 'AAA';
--$12,000,000 Series P senior notes 4.39% due on Sept. 27, 2023 at 'AAA';
--$10,000,000 Series FF senior notes 4.16% due on Nov. 20, 2023 at 'AAA';
--$20,000,000 Series JJ senior notes 3.34% due on Dec. 18, 2023 at 'AAA';
--$25,000,000 Series T senior notes 4.16% due on Jan. 22, 2024 at 'AAA';
--$20,000,000 Series L senior notes 3.99% due on Dec. 19, 2024 at 'AAA';
--$10,000,000 Series AA senior notes 3.48% due on June 14, 2025 at 'AAA';
--$30,000,000 Series MM senior floating rate notes due on June 14, 2025
at 'AAA';
--$30,000,000 Series NN senior notes 3.20% due on June 14, 2025 at 'AAA';
--$10,000,000 Series KK senior notes 3.53% due on Dec. 18, 2025 at 'AAA';
--$30,000,000 Series OO senior notes 3.27% due on April 9, 2026 at 'AAA';
--$85,000,000 Series D MRPS 4.01% due on Dec. 17, 2021 at 'AA';
--$80,000,000 Series E MRPS 4.34% due on Dec. 17, 2024 at 'AA'.
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 on 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
Additional Disclosures
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001806
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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