Market Overview

Fitch Affirms Kayne Anderson Funds' Notes at 'AAA' & MRPS at 'AA'

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed the 'AAA' ratings assigned to the senior unsecured notes and the 'AA' ratings assigned to the mandatory redeemable preferred stock (MRPS) issued by the following closed-end funds managed by KA Fund Advisors, LLC:

--Kayne Anderson Energy Total Return Fund, Inc. (NYSE: KYE)

--Kayne Anderson MLP Investment Company (NYSE: KYN),

--Kayne Anderson Midstream/Energy Fund, Inc. (NYSE: KMF).

A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

--Sufficient asset coverage relative to Fitch's published criteria

--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

--The capabilities of KA Fund Advisors, LLC as investment advisor. As of Jan. 31, 2013, the funds' total assets were approximately $7,281 million.

LEVERAGE

As of Jan. 31, 2012, KYE leverage was $393 million, not including accrued interest, or 28.1% of the total assets, which stood at $1,396.9 million. The leverage comprised $273 million of senior unsecured notes and $120 million of MRPS.

As of the same date, KYN leverage was $1,342 million, not including accrued interest, or 27.3% of the total assets, which stood at $4,919.6 million. The leverage comprised $890 million of senior unsecured notes, $374 million of MRPS, and $78 million of bank borrowing.

KMF leverage was $250 million, not including accrued interest, or 25.9% of the total assets, which stood at $964.5 million. The leverage comprised $165 million of senior unsecured notes, $65 million of MRPS, and $20 million of bank borrowing.

ASSET COVERAGE

At the time of the rating affirmations, the funds' asset coverage ratios applicable to the senior unsecured notes, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), were in excess of 300%, which is the minimum asset coverage required by the 1940 Act with respect to debt. The funds' asset coverage ratios, as calculated in accordance with the Fitch overcollateralization (OC) test per the 'AAA' rating criteria were in excess of 100%, which is the minimum asset coverage deemed consistent with the ratings assigned to the notes.

In addition, the funds' asset coverage ratios for MRPS, as calculated in accordance with the Investment Company Act of 1940, was in excess of 200%, which is the minimum asset coverage level required by the 1940 Act with respect to preferred stock. The funds' asset coverage ratios, as calculated in accordance with the Fitch OC test per the 'AA' rating criteria were in excess of 100%, which is the minimum asset coverage deemed consistent with the ratings assigned to preferred stock.

THE FUNDS

KYE is a non-diversified, closed-end fund, which commenced its operations on June 28, 2005. The fund's investment objective is to obtain a high level of total return with an emphasis on current income. The fund seeks to achieve that investment objective by investing principally in equity and debt securities of companies in the energy industry, such as energy related master limited partnerships (MLPs), U.S. and Canadian income trusts, marine transportation companies, midstream companies and coal companies.

KYN is a non-diversified, closed-end fund, which commenced its operations on Sept. 28, 2004. The fund's objective is to obtain high after tax total returns for its shareholders. The fund invests principally in equity securities of energy-related publicly traded MLPs.

As of Jan. 31, 2013, the fund incurred a deferred tax liability in the amount of $809.2 million. Under a stressed market scenario, the fund may have to liquidate portfolio assets to restore its asset coverage ratios. If such a scenario occurred, any currently existing unrealized gain would likely be eliminated or significantly reduced as a result of asset price declines causing such liquidation. Nonetheless, Fitch rating criteria expect the fund to account 10% of the deferred tax liability as current liability for the purpose of calculating OC coverage for both senior unsecured notes and MRPS.

KMF is a non-diversified, closed-end fund, which commenced its operations on Nov. 24, 2010. The fund's investment objective is to provide a high level of total return with an emphasis on making quarterly cash distributions to its common stockholders. The fund seeks to achieve that investment objective by investing at least 80% of its total assets in the securities of companies in the Midstream/Energy Sector, consisting of midstream MLPs, midstream companies, other MLPs and other energy companies.

THE ADVISOR

KA Fund Advisors, LLC is the fund's investment adviser, responsible for implementing and administering the fund's investment strategy. It is a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson) a Securities and Exchange Commission-registered investment adviser. As of Dec. 31, 2012 Kayne Anderson and its affiliates managed approximately $18 billion, including over $15 billion in the Midstream/Energy Sector. Kayne Anderson has invested in MLPs and other midstream energy companies since 1998.

RATINGS SENSITIVITIES

The ratings may 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. Given the funds' primary investment focus on the energy infrastructure sector, the fund ratings may also be sensitive to adverse changes in the economic conditions of the sector.

Fitch affirms the following ratings:

Kayne Anderson Energy Total Return Fund, Inc

--$128,000,000 series C 6.06% senior unsecured notes due on Aug. 13, 2013 at 'AAA';

--$58,000,000 series D 4.15% senior unsecured notes due on Mar. 5, 2015 at 'AAA';

--$27,000,000 series E 3-month LIBOR + 155 bps senior unsecured notes due on Mar. 5, 2015 at 'AAA';

--$30,000,000 series F 3-month LIBOR + 145 bps senior unsecured notes due on May 10, 2016 at 'AAA';

--$20,000,000 series G 3.71% senior unsecured notes due on May 10, 2016 at 'AAA';

--$10,000,000 series H 4.38% senior unsecured notes due on May 10, 2018 at 'AAA';

--$90,000,000 series A 5.48% MRPS due on Mar. 5, 2017 at 'AA';

--$30,000,000 series B 5.13% MRPS due on May 10, 2018 at 'AA'.

Kayne Anderson MLP Investment Company

--$125,000,000 series K 5.991% senior unsecured notes due on Jun. 19, 2013 at 'AAA';

--$60,000,000 series M 4.56% senior unsecured notes due on Nov. 4, 2014 at 'AAA';

--$50,000,000 series N 3-month LIBOR + 185 bps senior unsecured notes due on Nov. 4, 2014 at 'AAA';

--$65,000,000 series O 4.21% senior unsecured notes due on May 7, 2015 at 'AAA';

--$45,000,000 series P 3-month LIBOR + 160 bps senior unsecured notes due on May 7, 2015 at 'AAA';

--$15,000,000 series Q 3.23% senior unsecured notes due on Nov. 9, 2015 at 'AAA';

--$25,000,000 series R 3.73% senior unsecured notes due on Nov. 9, 2017 at 'AAA';

--$60,000,000 series S 4.4% senior unsecured notes due on Nov. 9, 2020 at 'AAA';

--$40,000,000 series T 4.5% senior unsecured notes due on Nov. 9, 2022 at 'AAA';

--$60,000,000 series U 3-month LIBOR + 145 bps senior unsecured notes due on May 26, 2016 at 'AAA';

--$70,000,000 series V 3.71% senior unsecured notes due on May 26, 2016 at 'AAA';

--$100,000,000 series W 4.38% senior unsecured notes due on May 26, 2018 at 'AAA';

--$14,000,000 series X 2.46% senior unsecured notes due on May 3, 2015 at 'AAA';

--$20,000,000 series Y 2.91% senior unsecured notes due on May 3, 2017 at 'AAA';

--$15,000,000 series Z 3.39% senior unsecured notes due on May 3, 2019 at 'AAA';

--$15,000,000 series AA 3.56% senior unsecured notes due on May 3, 2020 at 'AAA';

--$35,000,000 series BB 3.77% senior unsecured notes due on May 3, 2021 at 'AAA';

--$76,000,000 series CC 3.95% senior unsecured notes due on May 3, 2022 at 'AAA';

--$104,000,000 series A 5.57% MRPS due on May 7, 2017 at 'AA';

--$8,000,000 series B 4.53% MRPS due on Nov. 9, 2017 at 'AA';

--$42,000,000 series C 5.20% MRPS due on Nov. 9, 2020 at 'AA';

--$100,000,000 series D 4.95% MRPS due on Jun. 1, 2018 at 'AA';

--$120,000,000 series E 4.25% MRPS due on Apr. 1, 2019 at 'AA'.

Kayne Anderson Midstream/Energy Fund, Inc.

--$55,000,000 series A 3.93% senior unsecured notes due on Mar. 3, 2016 at 'AAA';

--$60,000,000 series B 4.62% senior unsecured notes due on Mar. 3, 2018 at 'AAA';

--$50,000,000 series C 4.00% senior unsecured notes due on Mar. 22, 2022 at 'AAA'.

--$35,000,000 series A 5.32% MRPS due on Mar. 3, 2018 at 'AA';

--$30,000,000 series B 4.50% MRPS due on Mar. 22, 2020 at 'AA'.

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 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 these ratings were the public domain and KA Fund Advisors, LLC.

Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012);

--'2013 Outlook: Closed-End Funds' (Dec. 14, 2012).

Applicable Criteria and Related Research

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686101

2013 Outlook: Closed-End Funds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696831

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Fitch Ratings
Primary Analyst
Viktoria Baklanova, PhD, CFA, +1-212-908-9162
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Gwen Fink-Stone, J.D., +1-212-908-9128
Associate Director
or
Committee Chairperson
Ralph Aurora, +1-212-908-0528
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

 

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