Fitch Ratings has affirmed the 'AAA' rating assigned to the following preferred shares issued by Boulder Growth & Income Fund, Inc. (NYSE: BIF), a leveraged equity closed-end fund co-advised by Boulder Investment Advisers LLC (BIA) and Stewart Investment Advisers (SIA):
--$25,000,000 of auction market preferred shares (AMPS), series M28, with a liquidation preference of $25,000 per share.
The main drivers of the rating affirmation are sufficient asset coverage, 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 and the capabilities of BIA and SIA as investment advisors. Fitch's rating on the AMPS speaks only to the credit risk of the security and not to potential liquidity in the secondary market.
As of Dec. 31, 2010, the fund's total assets were approximately $218 million. The fund's total leverage was approximately $25 million or 11% of total assets, consisting entirely of rated AMPS. No derivatives were utilized in the portfolio as of the same date.
At the time of the rating affirmation, the fund's asset coverage ratio for preferred stock, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), was in excess of 200%, which is the minimum asset coverage required by the 1940 Act. Also, at the time of these affirmations, the fund's asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests per the 'AAA' rating guidelines outlined in Fitch's applicable criteria were in excess of 100%, which are the minimum asset coverage amounts deemed consistent with an 'AAA' rating.
Should the asset coverage tests of the AMPS decline below their minimum threshold amounts (as tested on the last business day of each week) and are not cured within a pre-specified timeframe of six business days, the governing documents require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests within 41 calendar days.
Boulder Growth & Income Fund, Inc. is a non-diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended, that commenced investment operations in October 1972. The fund's investment objective is total return. The fund seeks to produce both income and long-term capital appreciation by investing in a portfolio of equity and debt securities. The fund invests primarily in common stocks, including dividend-paying common stocks such as those issued by utilities, real estate investment trusts and closed-end registered investment companies. The fund also invests in fixed income securities such as U.S. government securities, preferred stocks, and bonds. The fund invests primarily in securities of U.S.-based companies and to a lesser extent in foreign equity securities and sovereign debt, in each case denominated in foreign currency. Per the fund prospectus, the fund is concentrated in real estate related companies (RERCs), which means it must invest at least 25% of its total assets in RERCs and companies in the real estate industry.
As of Dec. 31, 2010, common equity securities constituted 78% of the portfolio, short-term U.S. Treasury securities made up 10% of the portfolio, auction-rate preferred stock issued by other closed-end funds comprised 4% of the portfolio across three distinct securities, master limited partnership interests in 11 energy companies represented 3%, and a limited partnership investment in one long-short equity fund represented 3% of the portfolio. The remaining 2% of the portfolio consisted of a single sovereign security and cash equivalents.
The fund's limited partnership investment is subject to certain withdrawal suspensions at the sole discretion of the general partner. Given the length of time needed for liquidation and the possibility of suspended withdrawals, Fitch does not afford this exposure credit for the purposes of calculating the asset coverage tests. With respect to the fund's investments in auction-rate preferred stock issued by other closed-end funds, the fund prices such securities at 87.5% of par due to limited secondary market liquidity. Fitch affords these types of assets 40% price credit in its asset coverage tests, consistent with its treatment of the preferred stock asset class outlined in its rating criteria.
The fund has invested 27% of assets in common stock of Berkshire Hathaway, Inc., which Fitch currently views as meeting the definition of a broadly diversified investment portfolio or holding company. As such, Fitch applies a 20% individual issuer concentration limit to this exposure for the purposes of determining the sufficiency of asset coverage.
The fund has no restrictions on its ability to invest in foreign securities. Fitch notes that potential exchange rate risk associated with investments in foreign denominated securities is included as part of Fitch's assessment of the sufficiency of asset coverage available to rated AMPS.
Boulder Investment Advisers, LLC and Stewart West Indies Trading Company, Ltd. (operating under the name Stewart Investment Advisers) act as the co-investment advisers to the fund. As of Nov. 30, 2010, the co-investment advisors had approximately $876 million of assets under management.
The rating 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 rating 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.
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess these ratings were the public domain, and Tortoise Capital Advisors,
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria', Aug. 17, 2009;
--'Closed-end Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations', March 18, 2010.
Applicable Criteria and Related Research:
Closed-End Fund Debt and Preferred Stock Rating Criteria
Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations
Russ Thomas, +1-312-368-3189
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Chicago, IL 60602
Yuriy Layvand, CFA, +1-212-908-9191
Ian Rasmussen, +1-212-908-0232
Brian Bertsch, +1-212-908-0549
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