Fitch Rates Eaton Vance Floating-Rate Income Trust Preferred Shares 'AA'
NEW YORK -- December 18, 2012
Fitch Ratings assigns an 'AA' rating to the following Variable-Rate Term
Preferred Shares (VRTP Shares) issued by Eaton Vance Floating-Rate Income
Trust (NYSE: EFT), a closed-end fund advised by Eaton Vance Management
--$80,000,000 of Series C-1 VRTP Shares, due Dec. 18, 2015.
The closing date for the VRTP Shares was Dec. 18, 2012. The proceeds of the
issuance are expected to be used to completely redeem all five series of
auction preferred shares (APS). The APS are expected to be redeemed or
repurchased in the coming weeks. Following the redemption or repurchase of the
five series of APS, Fitch will mark the series 'Paid In Full.'
KEY RATING DRIVERS
--Expectations of very low credit risk and very strong capacity for payment of
dividends and liquidation preference at the end of the term or upon mandatory
redemption; --Structural provisions of the VRTP Shares including the Asset
Coverage and Effective Leverage Ratio tests requiring the fund to maintain
minimum levels of asset coverage;
--Sufficient asset coverage provided to the VRTP Shares as calculated per the
fund's over-collateralization (OC) tests;
--Results of Fitch-performed stress tests meant to compare the fund's minimum
asset coverage tests to the stresses outlined in Fitch's CEF criteria under
changes to leverage amount and portfolio composition;
--Legal and regulatory parameters that govern the fund's operations; and
--The capabilities of Eaton Vance as investment manager.
At the time of the issuance, the fund's asset coverage ratio for the newly
issued VRTP Shares, as calculated in accordance with the Investment Company
Act of 1940 (1940 Act), exceeded 225%, which is the minimum asset coverage
required by transactional documents. Furthermore, the fund's pro forma
effective leverage ratio was below the 45% maximum leverage ratio allowed by
the fund's governing documents.
Should the asset coverage tests for the VRTP Shares decline below their
minimum threshold amounts and are not cured in a pre-specified timeframe, the
transactional documents require the fund to reposition portfolio assets or
reduce leverage in a sufficient amount to restore compliance with the
Fitch performed various stress tests on the fund to assess the strength of the
structural protections of the VRTP shares. The fund's asset coverage and
effective leverage tests were compared to the rating stresses outlined in
Fitch's closed-end fund rating criteria. These tests included determining
various 'worst case' scenarios where the fund's leverage and portfolio
composition migrated to the outer limits of the fund's operating and
investment guidelines. For example, current portfolio composition was stressed
by increasing the fund's issuer concentration, while simultaneously migrating
the portfolio to increased 2nd lien or covenant-lite loans. The results of the
stress tests indicate the structural protections of the VRTP Shares are in
line with Fitch's rating criteria at an 'AA' rating level. In certain remote
circumstances the asset coverage available to the VRTP shares fell below the
'AA' threshold, but in any case did not fall below 'BBB'.
EFT is a diversified, closed-end management investment company registered
under the Investment Company Act of 1940, as amended and commenced operations
in June 2004. The fund has the investment objective of providing a high level
of current income, with a secondary objective of seeking capital preservation
to the extent consistent with its primary goal of high current income. Under
normal market conditions, the fund will invest at least 80% of assets in
senior loans. The fund may also invest in second-lien loans and high-yield
As of Nov. 30, 2012, the fund managed over $930 million in assets, with
approximately 85% in first lien senior bank loans and 6% in high yield
corporate bonds with the remainder invested in second lied loans, equities and
cash. The fund is currently well diversified by obligor with all exposures
under 1.5%. The fund's top sector concentrations were in the Fitch sector
categories of pharmaceuticals; computer, electronics and telecommunications;
and media, broadcasting and cable and all exposures were under 20%.
As of the same date, the fund's total leverage, including the VRTP Shares, was
approximately $345 million with a leverage ratio of 36.5%. In addition to the
VRTP Shares, the fund continues to utilize senior debt financing in the form
of a committed credit facility. The credit facility is secured by a general
senior first claim on the fund's assets. The VRTP shares will be subordinate
to the line of credit and senior to the fund's outstanding common shares.
The fund may purchase senior loans that may be fully or partially unfunded and
the commitments of which the fund is obligated to fulfill at the borrower's
discretion. Fitch reviewed the size of the fund's unfunded loan commitments
and found them to be less than 1% of total assets. The fund also invests in
foreign currency denominated securities. The fund currently utilizes forward
foreign currency exchange contracts to hedge the potential exchange rate risk
associated with such investments.
Eaton Vance Management, a subsidiary of Eaton Vance Corp., acts as the
investment adviser to the fund. As of Oct. 31, 2012 Eaton Vance Corp. and
affiliates managed approximately $199.5 billion in assets.
The ratings may be sensitive to material changes in the credit quality or
market risk profile of the fund or the diversification of the portfolio by
issuer or sector. Material changes to the terms and provisions of leverage
senior to the VRTP Shares or changes to the derivative strategy and usage may
also impact the rating assigned to the VRTP Shares. 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
To receive Fitch's forthcoming research on closed-end funds please go to:
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 Eaton Vance.
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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