Fitch Ratings has placed on Rating Watch Negative the 'AAA' ratings assigned to Auction Rate Preferred Shares (ARPS) issued by DWS RREEF Real Estate Fund (SRQ) and DWS RREEF Real Estate Fund II (SRO). Both funds are managed by DWS Investments.
The Rating Watch Negative actions are a result of market value deterioration of the funds' portfolio, which challenged the funds' ability to maintain the required preferred stock coverage of at least 200% mandated by the Investment Company Act of 1940 as amended. The preferred stock asset coverage ratio is calculated by dividing the market value of the portfolio holdings by the par value of outstanding ARPS plus accrued dividends. The declines in the asset coverage ratios in both funds have been driven by significant market value deterioration of portfolio holdings and, in particular, common stocks, preferred stocks and other equities issued by real estate investment trusts (REITs).
Fitch surveys the funds' portfolios on a periodic basis. Rating downgrades may be warranted, in the event that the funds are unable to reduce leverage sufficiently to keep coverage ratios above levels mandated by applicable offering documents and regulatory requirements given potential further price decline of the underlying portfolio holdings.
Fitch's process for rating senior securities issued by closed-end funds is described in detail in its March 3, 2006 report, 'Closed-End Fund Debt and Preferred Stock Rating Criteria'. On Sept. 3, 2008 Fitch formally began a review of its closed-end fund rating criteria following a broader, coordinated initiative to update Fitch's methodologies for all market value structures. The criteria report and the press release ('Fitch Reviews Closed-End Fund Criteria') are both available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.