Fitch Ratings has affirmed the 'AAA' ratings on the Variable Rate Municipal Term Preferred Shares (VMTP Shares) and auction market preferred shares (AMPS) issued by Federated Premier Municipal Income Fund (NYSE:FMN) and Federated Premier Intermediate Municipal Income Fund (NYSE:FMN) as follows:
--$18,425,000 of VMTP Shares, series 2014, with a liquidation preference of $25,000 per share, due Dec. 22, 2014, affirmed at 'AAA';
--$18,150,000 of AMPS, series A, with a liquidation preference of $25,000 per share, affirmed at 'AAA'.
--$27,000,000 of VMTP Shares, series 2014, with a liquidation preference of $25,000 per share, due Dec. 22, 2014, affirmed at 'AAA';
--$14,900,000 of AMPS, series A, with a liquidation preference of $25,000 per share, affirmed at 'AAA'.
KEY RATING DRIVERS
The 'AAA' ratings assigned to the VMTP Shares and AMPS are based on asset coverage provided to each series of preferred shares by the funds' portfolios, structural protections afforded by mandatory deleveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the funds' operations and the capabilities of Federated as investment advisor. Fitch's ratings on the VMTP Shares and AMPS speak only to the credit risk of the securities and not to potential liquidity in the secondary market.
As of Oct. 31, 2012, the FMN's total leverage was approximately $53.7 million, or 36% of the total assets. FPT's total leverage was approximately $61.1 million, or 37% of the total assets. Leverage for FMN consisted of $18.4 million of VMTP Shares, $18.2 million of AMPS and $17.1 million of floating-rate certificates of tender option bonds. Leverage for FPT consisted of $27 million of VMTP Shares, $14.9 million of AMPS and $19.2 million of floating-rate certificates of tender option bonds.
As of Oct. 31, 2012, the funds' asset coverage ratios for the preferred shares, as calculated in accordance with the Investment Company Act of 1940, exceeded the minimum 225% asset coverage (Preferred Shares Asset Coverage Test) and the funds' effective leverage ratios were below the 45% maximum leverage ratio allowed by the governing documents (Effective Leverage Test). Also, at the time of issuance, asset coverage, as calculated in accordance with Fitch's 'AAA' overcollateralization (OC) tests described in Fitch's published criteria, exceeded 100%, which is also the minimum asset coverage required by transactional documents.
Should any of the above asset coverage tests decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the transactional documents require the funds to reduce leverage in a sufficient amount to restore compliance with the applicable tests.
Federated Premier Municipal Income Fund is a diversified, closed-end management investment company that commenced investment operations in 2002. The fund invests primarily in investment-grade securities that pay interest exempt from federal income tax, including AMT. Substantially all of the fund's assets (at least 90%) are invested in tax-exempt securities.
Federated Premier Intermediate Municipal Income Fund is a diversified, closed-end management investment company that commenced investment operations in 2002. The fund invests primarily in intermediate-term, investment-grade securities that pay interest exempt from federal income tax, including AMT. Substantially all of the fund's assets (at least 90%) are invested in tax-exempt securities.
From a credit quality perspective, the funds' investment parameters mandate that at the time of purchase, at least 80% of total assets will be invested in securities of investment-grade credit quality, no more than 20% of total assets will be invested in securities rated below investment-grade, and no investments will be made in securities rated below a 'B' rating, or deemed as such by the funds' internal credit ratings.
Federated serves as the fund's investment advisor, and is a direct wholly owned subsidiary of Federated Investors, Inc. As of Sept. 30, 2012, Federated Investors, Inc. and affiliates had approximately $364 billion in assets under management.
The ratings assigned to the VMTP Shares and AMPS may be sensitive to material changes in the leverage composition, credit quality of portfolio assets or market risk profile of the funds. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be downgraded by Fitch.
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'.
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 Federated.
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
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