Fitch Ratings has affirmed the 'AAA' ratings assigned to auction rate preferred shares (ARPS) issued by the following five closed-end funds advised by Allianz Global Investors Fund Management, LLC (Allianz). At the same time, Fitch has removed four of the ratings from Rating Watch Negative:
PIMCO High Income Fund (NYSE: PHK)
--$292,000,000 of ARPS consisting of Series M, T, W, TH and F, each with a liquidation preference of $25,000 per share, affirmed at 'AAA' and removed from Rating Watch Negative.
PIMCO Income Strategy Fund (NYSE: PFL)
--$78,975,000 of ARPS consisting of Series T, W and TH, each with a liquidation preference of $25,000 per share, affirmed at 'AAA' and removed from Rating Watch Negative.
PIMCO Income Strategy Fund II (NYSE: PFN)
--$161,000,000 of ARPS consisting of Series M, T, W, TH and F, each with a liquidation preference of $25,000 per share, affirmed at 'AAA' and removed from Rating Watch Negative.
Nicholas-Applegate Convertible & Income Fund II (NYSE: NCZ)
--$274,000,000 of ARPS consisting of Series A, B, C, D and E, each with a liquidation preference of $25,000 per share, affirmed at 'AAA' and removed from Rating Watch Negative.
PIMCO Corporate Income Fund (NYSE: PCN)
--$169,000,000 of ARPS consisting of Series M, T, W, TH and F, each with a liquidation preference of $25,000 per share, affirmed at 'AAA'.
The 'AAA' ratings are based on sufficient asset coverage provided to the ARPS by the funds' underlying portfolios of assets, structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the funds' operations and the capabilities of the Advisor as investment manager. The affirmations and removals from Rating Watch Negative reflect the funds' amended and restated bylaws, which include asset coverage guidelines consistent with an 'AAA' rating per Fitch's updated closed-end fund rating criteria. The four funds previously on Rating Watch Negative were placed on Rating Watch Negative on Oct. 17, 2008, as a result of material asset coverage declines at the assigned rating levels. Asset coverage has since been restored to levels consistent with 'AAA' ratings, although the ratings were not formally removed from Rating Watch Negative until such time as the funds fully met the deleveraging features consistent with Fitch's updated closed-end fund rating criteria.
As of Feb. 26, 2010, the funds had the following Net Assets and leverage:
--PHK: Net Assets of approximately $1,265 million and total structural liabilities of $540 million or 43% of Net Assets. Total structural liabilities consisted of approximately $248 million of reverse repurchase agreements and $292 million of rated ARPS. Fitch's criteria also consider the fund's use of economic leverage in the form of derivatives.
--PFL: Net Assets of approximately $271 million and total structural liabilities of $93 million or 34% of Net Assets. Total structural liabilities consisted of approximately $14 million of reverse repurchase agreements and $79 million of rated ARPS. Fitch's criteria also consider the fund's use of economic leverage in the form of derivatives.
--PFN: Net Assets of approximately $559 million and total structural liabilities of $188 million or 34% of Net Assets. Total structural liabilities consisted of approximately $27 million of reverse repurchase agreements and $161 million of rated ARPS. Fitch's criteria also consider the fund's use of economic leverage in the form of derivatives.
--PCN: Net Assets of approximately $664 million and total structural liabilities of $233 million or 35% of Net Assets. Total structural liabilities consisted of approximately $64 million of reverse repurchase agreements and $169 million of rated ARPS. Fitch's criteria also consider the fund's use of economic leverage in the form of derivatives.
--NCZ: Net Assets of approximately $761 million and total structural liabilities of $274 million or 36% of Net Assets. Total structural liabilities consisted entirely of rated ARPS.
As of Feb. 26, 2010, the funds' asset coverage ratios for total outstanding ARPS and other fund leverage, as calculated per the Fitch updated criteria were in excess of 100% for an 'AAA' rating level, which is a minimum asset coverage required by the funds' amended and restated bylaws. As of the same date, the funds' asset coverage ratios for total outstanding ARPS, 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 funds' governing documents. Should either of the asset coverage tests decline below their minimum threshold amounts and are not cured in a specified timeframe, the governing documents require the funds to delever the affected ARPS in a sufficient amount to restore compliance with the applicable asset coverage test(s).
Pacific Investment Management Company LLC acts as the subadviser for PHK, PFL, PFN and PCN and Nicholas-Applegate Capital Management LLC acts as the subadviser for NCZ. All five funds are also managed by the Advisor, an indirect, majority owned subsidiary of Allianz SE. As of Dec. 31, 2009, the Advisor had approximately $41 billion of assets under management.
Applicable criteria available on Fitch's web site at www.fitchratings.com include:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria' (Aug. 17, 2009).
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings, New York
Yuriy Layvand, CPA, +1-212-908-9191
Gwen
Fink-Stone, +1-212-908-9128
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com
