Fitch Ratings has assigned an 'AA' rating to the newly issued series B of the mandatory redeemable preferred shares (MRPS) issued by Tortoise Energy Infrastructure Corporation (NYSE: TYG), a closed-end fund managed by Tortoise Capital Advisors, LLC (Tortoise) as follows:
--$80,000,000 of 4.375% series B MRPS due on Dec. 31, 2027.
KEY RATING DRIVERS
--Asset coverage provided to MRPS by the fund portfolio;
--Mandatory deleveraging provisions in the event of asset coverage declines;
--Legal and regulatory parameters that govern the fund's operations; and
--Capabilities of Tortoise as investment advisor.
USE OF PROCEEDS
The fund intends to use the net proceeds from this issuance to redeem all $73,000,000 of its outstanding 6.25% series A MRPS. The fund may also use the net proceeds from this offering to retire a portion of its short-term debt outstanding under its credit facility, to invest in energy infrastructure companies in accordance with its investment objective and policies or for working capital purposes. Series A MRPS are currently rated 'AA' by Fitch. The rating will be considered 'Paid In Full' upon full redemption of this series.
LEVERAGE
As of Nov. 30, 2012, TYG's total assets were $1,729.3 million including leverage comprising $195 million of unsecured senior notes, $73 million of MRPS and $63.4 million of bank borrowing.
ASSET COVERAGE
As of Oct. 30, 2012, the fund's asset coverage ratio 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 fund's asset coverage ratio, as calculated in accordance with the Fitch overcollateralization (OC) test per the 'AA' rating guidelines outlined in Fitch's applicable criteria was in excess of 100%, which is the minimum asset coverage deemed consistent with an 'AA' rating.
Should the asset coverage tests of MRPS decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the governing documents require the funds to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests.
FUNDS PROFILE
The fund is a non-diversified, closed-end management investment company with an objective of obtaining a high level of total return and an emphasis on current distributions. The fund invests the majority of its assets in equity securities of publicly-traded MLPs and their affiliates in the energy infrastructure sector. These companies gather, transport, process, store, distribute or market natural gas, natural gas liquids, coal, crude oil, refined petroleum products or other natural resources, or explore, develop, manage or produce such commodities.
THE ADVISOR
Tortoise, a wholly owned subsidiary of Tortoise Holdings, LLC, is the fund's investment adviser, responsible for the fund's overall investment strategy and its implementation. As of Oct. 31, 2012, the advisor, which was formed in October 2002, had approximately $9.2 billion in assets under management.
RATING SENSITIVITY
The ratings assigned to MRPS may be sensitive to material changes in the credit quality or market risk profiles of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch.
For additional information about Fitch closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website at 'www.fitchratings.com'.
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 Tortoise.
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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686101
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