NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings assigned to the auction market preferred shares (AMPS) issued by Eaton Vance Limited Duration Income Fund (NYSE AMEX:EVV), a closed-end fund managed by Eaton Vance Management:
--Series A, 2133 shares outstanding, with a liquidation preference of
$25,000 per share, affirmed at 'AAA';
--Series B, 2133 shares
outstanding, with a liquidation preference of $25,000 per share,
affirmed at 'AAA';
--Series C, 2133 shares outstanding, with a
liquidation preference of $25,000 per share, affirmed at 'AAA';
--Series
D, 2133 shares outstanding, with a liquidation preference of $25,000 per
share, affirmed at 'AAA';
--Series E, 2133 shares outstanding, with
a liquidation preference of $25,000 per share affirmed at 'AAA'.
The affirmation follows Fitch's annual review of EVV. The 'AAA' ratings are based on sufficient asset coverage provided to the AMPS by the fund's underlying portfolio of assets, the structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the fund's operations and the capabilities of Eaton Vance Management as the investment advisor. Fitch's ratings on AMPS speak only to timely repayment of interest and principal in accordance with the governing documents and not to potential liquidity in the secondary market.
As of Jan. 31, 2011, leverage, which consisted of senior borrowings and rated AMPS, was approximately 29% of total assts. Leverage consisted of approximately $266.6 million of rated AMPS and $515.5 million of senior borrowings. The fund also had two Term Asset-Backed Securities Loan Facility (TALF) loans that together were approximately $51 million.
As of the same date, the fund's asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests per the 'AAA' rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which is the minimum asset coverage amount deemed consistent with an 'AAA' rating. These tests serve as minimum asset coverage covenants required by the fund's governing documents. As such, should the asset coverage for the AMPS decline below 100%, the governing documents require the fund to alter the composition of the portfolio to assets with lower discount factors, or to reduce leverage in a sufficient amount to restore compliance within 38 business days.
Additionally, the fund's asset coverage ratios for total outstanding AMPS and borrowings, as calculated in accordance with the Investment Company Act of 1940, were in excess of 200%, which is also a minimum asset coverage required by the fund's governing documents.
As of Jan. 31, 2011, the portfolio consisted mainly of high-yield corporate securities, mortgages-backed securities guaranteed by U.S. government agencies and senior loans. EVV's top sector concentrations were in the Fitch sector categories of U.S. government agencies; computer and electronics, telecommunications; and broadcasting, media and cable. Given the high levels of issuer and sector diversification of the fund's assets, in accordance with Fitch's applicable rating criteria, no additional haircuts were added to the asset specific discount factors used for calculating asset coverage.
The fund may purchase senior loans that may be fully or partially unfunded and the commitments of which the fund is obligated to fulfill at the borrower's discretion. Fitch reviewed the size of unfunded loan commitments and found them to be less than 1% of total assets. The fund also invests in foreign currency denominated securities. The fund currently utilizes forward foreign currency exchange contracts to hedge the potential exchange rate risk associated with such investments. Fitch notes that for unhedged positions, exchange rate risk is included as part of Fitch's assessment of the sufficiency of asset coverage available to rated AMPS.
Eaton Vance Limited Duration Income Fund is a non-diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended. The fund commenced operations in May 2003 with the investment objective of seeking a high level of current income with a secondary objective of seeking capital appreciation. The fund invests primarily in two investment categories, U.S. government agency mortgage-backed securities and investments rated below investment grade including senior loans and bonds.
Eaton Vance Management, a subsidiary of Eaton Vance Corp. acts as the investment adviser to the fund. As of Jan. 31, 2011, Eaton Vance and its affiliates managed approximately $191.7 billion in assets.
The ratings may be sensitive to material changes in the credit quality or market risk profiles of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating 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.
Additional information is available at www.fitchratings.com.
The sources of information used to assess this rating were the public domain and Eaton Vance Management.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt
and Preferred Stock Rating Criteria' (Aug. 17, 2009);
--'Fitch
Launches 'CEF Updates' for Closed-End Fund's (Nov. 8, 2010);
--'Closed-End
Fund: Evolving Use of Leverage and Derivatives' (Sept. 27, 2010);
--'Closed-End
Fund: Redemptions Provide Some Liquidity to Illiquid ARPS Market' (Aug.
31, 2010);
--'Closed-End Fund: Fitch Clarifies Criteria for
Make-Whole Amounts and Other Prepayment Obligations' (March 18, 2010).
Applicable Criteria and Related Research:
Closed-End Funds:
Redemptions Provide Some Liquidity to Illiquid ARPS Market
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=552106
Closed-End
Fund Debt and Preferred Stock Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462492
Closed-End
Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other
Prepayment Obligations
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504986
Closed-End
Funds: Evolving Use of Leverage and Derivatives
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=559525
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