Fitch Rates New VRTP Shares Issued by Invesco Van Kampen Senior Income Trust
Fitch Ratings assigns an 'AAA' rating to the following Variable Rate Term Preferred Shares (VRTP Shares) issued by Invesco Van Kampen Senior Income Trust (NYSE: VVR), a senior loan closed-end fund managed by Invesco Advisers, Inc.:
--$125,000,000 of series C-1, C-2, C-3, C-4 and L-1 VRTP Shares, due November 2015, with a liquidation preference of $100,000 per share;
Proceeds from the issuance of the VRTP Shares will be used by VVR to redeem all outstanding auction rate cumulative preferred shares (ARPS).
In conjunction with the above-mentioned rating action, Fitch marks all VVR's ARPS 'Paid In Full':
--$125,000,000 of ARPS, series M, T, W, TH, & F with a liquidation preference of $25,000 per share.
KEY RATING DRIVERS
The 'AAA' long-term rating on the VRTP Shares primarily reflects:
--Sufficient asset coverage provided to the VRTP Shares 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; and
--The capabilities of Invesco Advisers, Inc. as investment advisor.
At the time of the issuance, the fund's asset coverage ratio for the newly issued VRTP Shares, as calculated in accordance with the Investment Company Act of 1940, exceeded the minimum 225% asset coverage (Preferred Shares Asset Coverage Test) and the fund's effective leverage ratio was below the 45% maximum leverage ratio allowed by the VRTP Shares governing documents (Effective Leverage Test). Also, at the time of issuance, asset coverage, as calculated in accordance with Fitch's 'AAA' overcollateralization (OC) tests described in Fitch's published criteria, exceeded 100%, which is also the minimum asset coverage required by transactional documents.
Should any of the above asset coverage tests decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the transactional documents require the fund to reposition portfolio assets or reduce leverage in a sufficient amount to restore compliance with the applicable tests.
Invesco Van Kampen Senior Income Trust is a diversified, closed-end management investment company. The fund commenced investment operations on June 23, 1998 and is registered under the 1940 Act. The fund's investment objective is to provide a high level of current income, consistent with preservation of capital. Under normal market conditions the fund pursues its objective by investing at least 80% of its total assets in senior secured loans. As of Oct. 12, 2012, the fund held approximately 88% of its portfolio in senior secured loans. Regarding diversification, the fund's governing documents require that the fund adhere to a single industry investment limit of 25% and a single issuer investment limit of 5% for up to 75% of the portfolio.
The fund may also invest up to 20% of the fund's net assets in unsecured loans and may acquire warrants, equity securities and junior debt securities in conjunction with its investments in senior loans. Regarding the use of derivatives, the fund is permitted by its investment guidelines to enter into interest rate hedging and risk management transactions for hedging purposes and may also invest up to 10% of net assets in structured notes, including credit default swaps (CDS), for speculative purposes. As of Oct. 12, 2012, the fund had no derivative positions.
The fund does not adhere to explicit minimum credit quality guidelines, although material negative credit migration would result in the fund breaching its asset coverage ratios and therefore require the fund to rebalance the portfolio or deleverage to restore appropriate asset coverage.
The fund employs leverage in the form of a revolving line of credit, of which $201 million out of a facility limit of $350 million was drawn as of Oct. 12, 2012, and pro forma $125 million of VRTP Shares. The fund typically targets leverage in a range of 25%-35% of total assets and as of Oct. 12, 2012, the leverage amount was 25%. The bank line is secured by a general senior first claim on the fund's assets, which is reflected in Fitch's OC and Net OC calculations. The VRTP Shares will be subordinate to the line of credit and senior to the fund's outstanding common shares.
Invesco Advisers, Inc., an indirect, wholly owned subsidiary of Invesco, Ltd., is the fund's adviser, responsible for the fund's overall investment strategy and its implementation. Invesco Ltd. had approximately $683 billion of assets under management as of Sept. 30, 2012.
The ratings assigned to the VRTP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality, portfolio diversification or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The sources of information used to assess this rating were the public domain and ISSM.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock', Aug. 15, 2012.
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
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