Fitch Affirms Note Programs of Banco Popular, Santander and UBS Puerto Rico CEFs

jueves 15 de octubre de 2015 16:27 GYT
 

(The following statement was released by the rating agency) NEW YORK, October 15 (Fitch) Fitch Ratings has reviewed and affirmed the ratings assigned to medium-term and short-term note programs (Note Programs) maintained by 30 Puerto Rico closed-end funds (CEFs) advised by Santander Asset Management LLC., UBS Asset Managers (UBS), and co-advised by Popular Asset Management and UBS Asset Managers of Puerto Rico (Popular). A complete list of rating actions can be found at the end of this release. On July 30, 2015, Fitch published an exposure draft indicating minor changes to the rating criteria applicable to ratings assigned to notes issued by Puerto Rico closed-end funds (PR CEFs). On Sept. 16, 2015 the proposed changes were formalized. A specific change that impacts the PR CEFs concerns tightening the diversification thresholds for state-level general obligation bonds (GOs) rated below investment grade. The concentration threshold for such issuers is 10% with any amounts above the threshold not included in the Fitch Overcollateralization (OC) Test asset-coverage calculations. KEY RATING DRIVERS Given the structural protections of the Note Programs leading to re-allocation of assets in each Note Program's collateral account and the general deleveraging of the PR CEFs over the past few months, asset coverage has remained at levels consistent with the assigned ratings. The affirmations also reflect the funds' ability to keep asset coverage in line with the assigned ratings going forward through increasing portfolio diversification and adjusting the funds' leverage strategy to reflect the volatility in Puerto Rico debt. The main drivers for the rating actions are: --The asset coverage available to each series of notes at the individual, sub-account level; --The structural protections afforded by mandatory collateral maintenance provisions in the event of asset coverage declines; --The legal and regulatory parameters that govern the funds' operations; --The capabilities of the investment adviser for each fund. FUND SUMMARY The funds are corporations organized under the laws of the Commonwealth of Puerto Rico, and are duly registered as non-diversified, closed-end management investment companies under the Puerto Rico Investment Companies Act of 1954, as amended. The funds under normal market conditions invest at least 67% of total assets in securities issued by Puerto Rico entities. These include securities issued by the Commonwealth of Puerto Rico, Puerto Rico mortgage-backed and asset-backed securities, corporate obligations and preferred stock of Puerto Rico entities. The funds increase amounts available for investment through the issuance of debt securities, or other forms of leverage, representing not more than 50% of total assets immediately after any such issuance. The funds have the ability to use Note Programs and reverse repurchase agreements for fund leverage, although not all facilities are utilized at all times. STRUCTURAL PROTECTIONS At the time of the ratings, the funds' asset coverage ratios, as calculated in accordance with the Fitch OC tests using the asset-specific discount factors and the minimum discount factors found in the rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which are the minimum asset coverage amounts deemed consistent with the assigned ratings. Each fund segregates collateral for medium-term note series and short-term note series separately. The Fitch OC tests calculate asset coverage available to the notes based on stressed portfolio market value, given the discount factors in the rating criteria and the diversification of each segregated collateral account. Should any such asset coverage tests decline below 100% (as tested weekly) and not be cured within the pre-specified timeframe of five business days, the governing documents require the collateral agent to reduce leverage in a sufficient amount to restore compliance with the applicable asset coverage tests on the final day of the cure period. THE ADVISORS UBS Asset Managers of Puerto Rico is an investment advisor. UBS Asset Managers of Puerto Rico is a division of UBS Trust Company of Puerto Rico, which is an affiliate of UBS Financial Services Incorporated of Puerto Rico. As of June 30, 2015, UBS Asset Managers of Puerto Rico had $4.2 billion of assets under management. Popular Asset Management is a division of Banco Popular de Puerto Rico. As of June 30, 2015 Popular Asset Management has $2 billion of assets under management. Santander Asset Management, LLC (SAM Puerto Rico or SAM PR) is an investment advisor. SAM PR is a wholly-owned subsidiary of SAM Investment Holdings Limited (Jersey) (SAM Holdings Jersey), a privately held company organized under the laws of Jersey, United Kingdom, also referred to as SAM Global. SAM Global is owned in part (50%) by SAM UK Investment Holdings Limited, which is owned directly and indirectly by Banco Santander S.A., a public company traded on the New York Stock Exchange. SAM Global is also owned in part (50%) by Sherbrooke Acquisition Corp SPC, a segregated portfolio company incorporated in the Cayman Islands, controlled jointly by Warburg Pincus, LLC and General Atlantic, LLC. SAM PR is a part of SAM Global, which is composed of 11 asset management firms operating in 12 countries. As of June 30, 2015, SAM PR managed approximately $2 billion in assets. RATING SENSITIVITIES The ratings may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch. Changes in the supply-demand dynamics with respect to invested collateral types may influence Fitch's view of the liquidity of underlying collateral types, especially any Puerto Rico bonds in the collateral accounts. In addition, the total amount of leverage assumed by the funds could also influence Fitch's analytical conclusion if such leverage increased the likelihood of a bankruptcy stay with respect to the overall fund. For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'. RATING ACTIONS Fitch affirms the following ratings: UBS and Popular Co-managed PR CEFs: Puerto Rico Investors Tax-Free Bond Fund I --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Investors Tax-Free Fund --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Investors Tax-Free Fund II --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Investors Tax-Free Fund III --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Investors Tax-Free Fund IV --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Investors Tax-Free Fund V --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Investors Tax-Free Fund VI --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. SAM PR Managed CEFs: First Puerto Rico AAA Target Maturity Fund I --Medium-Term Notes series affirmed at 'AA'; --Short-Term Notes series affirmed at 'F1+'. First Puerto Rico AAA Target Maturity Fund II --Medium-Term Notes series affirmed at 'AA'; --Short-Term Notes series affirmed at 'F1+'. First Puerto Rico Target Maturity Income Opportunities Fund I --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. First Puerto Rico Target Maturity Income Opportunities Fund II --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. First Puerto Rico Tax-Advantaged Target Maturity Fund I --Medium-Term Notes series affirmed at 'AA'; --Short-Term Notes series affirmed at 'F1+'. First Puerto Rico Tax-Advantaged Target Maturity Fund II --Medium-Term Notes series affirmed at 'AA'; --Short-Term Notes series affirmed at 'F1+'. First Puerto Rico Tax-Exempt Fund --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. First Puerto Rico Tax-Exempt Target Maturity Fund II --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. First Puerto Rico Tax-Exempt Target Maturity Fund III --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. First Puerto Rico Tax-Exempt Target Maturity Fund IV --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. First Puerto Rico Tax-Exempt Target Maturity Fund V --Medium-Term Notes series affirmed at 'A'; --Short-Term Notes series affirmed at 'F1'. UBS Managed PR CEFs: Puerto Rico AAA Portfolio Bond Fund, Inc. --Medium-term notes series at 'AA'; --Short-term notes series at 'F1+'. Puerto Rico AAA Portfolio Bond Fund II, Inc. --Medium-term notes series at 'AA'; --Short-term notes series at 'F1+'. Puerto Rico AAA Portfolio Target Maturity Fund, Inc. --Medium-term notes series at 'AA'; --Short-term notes series at 'F1+'. Puerto Rico GNMA & US Government Target Maturity Fund, Inc. --Medium-term notes series at 'AA'; --Short-term notes series at 'F1+'. Puerto Rico Fixed Income Fund, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Fixed Income Fund II, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Fixed Income Fund III, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Fixed Income Fund IV, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Puerto Rico Fixed Income Fund V, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Tax-Free Puerto Rico Fund, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Tax-Free Puerto Rico Fund II, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Tax-Free Puerto Rico Target Maturity Fund, Inc. --Medium-term notes series at 'A'; --Short-term notes series at 'F1'. Contact: Primary Analyst Ian Rasmussen Senior Director +1-212-908-0232 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Russ Thomas Director +1-312-368-3189 Committee Chairperson Ralph Aurora Senior Director +1-212-908-0528 Media Relations: Hannah James, New York, Tel: + 1 212 908 0500, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com The sources of information used to assess this rating were the public domain and SAM, UBS and Popular. 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