NEW YORK--(BUSINESS WIRE)--Fitch Ratings has reviewed and affirmed the ratings assigned to Medium-Term Notes series and Short-Term Notes series issued by 12 Puerto Rico closed-end funds advised by Santander Asset Management (Puerto Rico). A list of rating actions may be found at the end of the press release.
KEY RATING DRIVERS
The main drivers for the rating actions are the asset coverage available to the notes at the individual, sub-account level, the structural protections afforded by mandatory collateral maintenance provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the funds' operations, and the capabilities of Santander Asset Management (Puerto Rico) as investment adviser. The funds' credit parameters are consistent with Fitch's Puerto Rico closed-end fund rating criteria at the assigned rating levels for each series of notes.
FUND SUMMARY
The funds are corporations organized under the laws of the Commonwealth of Puerto Rico, and are duly registered as non-diversified, closed-end management investment companies under the Puerto Rico Investment Companies Act, as amended.
The funds normally invest at least 67% of total assets in securities issued by Puerto Rico entities. These include securities issued by the Commonwealth of Puerto Rico, Puerto Rico mortgage-backed and asset-backed securities, corporate obligations and preferred stock of Puerto Rico entities.
The funds increase amounts available for investment through the issuance of debt securities, or other forms of leverage, representing not more than 50% of total assets immediately after any such issuance. Currently the funds utilize short-term and medium-term note facilities, as well reverse repurchase agreements, although not all facilities are utilized at all times.
STRUCTURAL PROTECTIONS
At the time of the ratings, the funds' asset coverage ratios, as calculated in accordance with the Fitch OC tests using the asset specific discount factors and the minimum discount factors found in the rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which are the minimum asset coverage amounts deemed consistent with the assigned ratings.
Each fund segregates collateral for medium-term note series and short-term note series separately. The Fitch OC tests calculate asset coverage available to the notes based on the discounted market price loss expectations and diversification of the assets in each segregated collateral account. Should any such asset coverage tests decline below 100% (as tested weekly) and not be cured within the pre-specified timeframe of 5 business days, the governing documents would require the collateral agent to reduce leverage in a sufficient amount to restore compliance with the applicable asset coverage tests on the final day of the cure period.
THE ADVISOR
Santander Asset Management (Puerto Rico) is the funds' investment advisor and, subject to the supervision of the funds' board of directors, is responsible for the overall investment strategy and implementation. Santander Asset Management (Puerto Rico) is a wholly-owned subsidiary of Santander Securities, a subsidiary of Santander Bancorp, and part of Grupo Santander, a leading global financial institution with a presence in 40 countries and over Euro 1.209 trillion in assets as of March 31, 2011. As part of Grupo Santander, Santander Asset Management (Puerto Rico) is part of the global Santander Asset Management division, which operates in 13 countries and had over Euro 140 billion in assets under management as of March 31, 2011. As of the same date, Santander Asset Management (Puerto Rico) managed approximately $3.7 billion in assets.
RATINGS SENSITIVITY
The ratings may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch. Changes in the supply-demand dynamics with respect to invested collateral types may influence Fitch's analytical approach to the liquidity of underlying collateral types. In addition, the amount of leverage assumed by the fund could also influence Fitch's analytical conclusion if such leverage increased the likelihood of a bankruptcy stay with respect to the overall fund.
For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end fund, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.
RATING ACTIONS
First Puerto Rico AAA Target Maturity Fund I
--Medium-Term Notes series, affirmed at 'AA';
--Short-Term Notes series, affirmed at 'F1+'.
First Puerto Rico AAA Target Maturity Fund II
--Medium-Term Notes series, affirmed at 'AA';
--Short-Term Notes series, affirmed at 'F1+'.
First Puerto Rico Target Maturity Income Opportunities Fund I
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Target Maturity Income Opportunities Fund II
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Tax-Advantaged Target Maturity Fund I
--Medium-Term Notes series, affirmed at 'AA';
--Short-Term Notes series, affirmed at 'F1+'.
First Puerto Rico Tax-Advantaged Target Maturity Fund II
--Medium-Term Notes series, affirmed at 'AA';
--Short-Term Notes series, affirmed at 'F1+'.
First Puerto Rico Tax-Exempt Fund
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Tax-Exempt Target Maturity Fund I
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Tax-Exempt Target Maturity Fund II
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Tax-Exempt Target Maturity Fund III
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Tax-Exempt Target Maturity Fund IV
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
First Puerto Rico Tax-Exempt Target Maturity Fund V
--Medium-Term Notes series, affirmed at 'A';
--Short-Term Notes series, affirmed at 'F1'.
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess this rating were the public domain and Santander Asset Management (Puerto Rico).
Applicable Criteria and Related Research:
--'Rating Puerto Rico Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011)
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011);
--'Counterparty Criteria for Structured Finance Transactions,' (March 14, 2011).
Applicable Criteria and Related Research:
Puerto Rico Closed-End Fund Debt and Preferred Stock Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506485
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648840
Counterparty Criteria for Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605425
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.