Fitch Rates Aberdeen Asia-Pacific Income Fund Preferred Stock 'AA'; Affirms
Notes at 'AAA'
NEW YORK -- July 1, 2013
Fitch Ratings assigns an 'AA' rating to the following cumulative preferred
stock issued by Aberdeen Asia-Pacific Income Fund, Inc. (NYSE MKT: FAX).
--$50,000,000 Series A Mandatorily Redeemable Preferred Stock (MRPs), due June
At the same time, Fitch affirms the 'AAA' ratings assigned to the fund's
following outstanding senior secured notes (Notes).
--$100,000,000 Series A Notes due June 12, 2020;
--$100,000,000 Series B Notes due June 12, 2023.
The Fund is a closed-end investment company regulated by the Investment
Company Act of 1940 (1940 Act) and managed by Aberdeen Asset Management Asia
Limited, a wholly-owned subsidiary of Aberdeen Asset Management PLC (LON: ADN)
rated 'A-'/'F2' with a Stable Outlook by Fitch.
The closing for MRPs took place on June 27, 2013 with an aggregate liquidation
preference amount of $50 million that was privately placed with institutional
investors. The proceeds from the MRPs were used to pay down a portion of the
Fund's revolving credit facility.
KEY RATING DRIVERS
The rating assignment and affirmations reflect:
--Sufficient asset coverage provided to the Notes and MRPs calculated per
Fitch's asset coverage tests and published rating criteria at their respective
--The structural protections afforded by mandatory collateral maintenance and
de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the Fund's operations;
--The capabilities of Aberdeen Asset Management as investment adviser.
As of May 31, 2013, the Fund's balance sheet had $2,531 million in assets (net
of current liabilities) and $600 million in leverage. After giving effect to
the issuance and sale of the $50 million in Fitch-rated MRPs, the fund's
remaining pro-forma capital structure would consist of $200 million in
Fitch-rated Notes, $200 million of bank term loans, and $150 million in
revolving bank credit facility.
As of May 31, 2013 the fund also utilized $600 million in long interest rate
swaps (IRS) to hedge interest rate risk associated with floating rate
liabilities, although the Fund intends to lower the IRS notional in line with
the partial refinancing of related liabilities. The fund also utilized net
long futures contracts for efficient portfolio management and other
derivatives, such as Treasury futures, for hedging purposes.
Pro forma asset coverage ratios for the Notes and MRPs, as calculated in
accordance with the Fitch total and net overcollateralization tests (Fitch OC
tests) per the 'AAA' and 'AA' rating guidelines outlined in Fitch's closed-end
fund criteria, were in excess of 100%, respectively. These are the minimum
asset coverage guidelines required by the Fund's governing documents.
At the time of issuance of each of the Notes and the MRPs, the Fund's asset
coverage ratios for the Notes and MRPs, as calculated in accordance with the
1940 Act, were in excess of 300% and 225%, respectively, which are the minimum
asset coverage tests required by Note purchase agreement and MRPs purchase
agreement, respectively (Asset Coverage Tests).
Fitch notes a restricted payment clause in the Note purchase agreement
precludes the Fund from paying any dividend if, immediately before or after
giving effect thereto, there is or would be a breach of the 300% Asset
Coverage Test. Furthermore the MRPs purchase agreement does not afford a
penalty rate for cumulative unpaid dividends.
Suspension of MRPs dividends upon a Notes' Asset Coverage Test breach would
not have an impact on Fitch's 'AA' rating for the MRPs because the MRPs are
cumulative in nature, disclosed to the purchasers as such, and any accrued but
unpaid cumulative dividends would be captured in Fitch's OC test calculation.
As of May 31, 2013, the Fund's pro-forma asset coverage as calculated in
accordance with the 1940 Act was approximately 420%, allowing a 29% market
value cushion before a potential breach.
MRPS STRUCTURAL PROTECTIONS
Should the MRPs' Asset Coverage Test and Fitch OC Test decline below their
minimum threshold amounts (as tested monthly) the Fund is required to deliver
notice to the MRPs purchasers within five days of becoming aware of such fact.
The Fund manager is required to cure the breach by altering the composition of
the portfolio toward assets with lower discount factors (for Fitch OC Tests
breaches), or by reducing leverage in a sufficient amount (for both the Fitch
OC Tests and Asset Coverage Test breaches) within a pre-specified time period
(a maximum of 100 calendar days).
NOTES STRUCTURAL PROTECTIONS
The Notes structural protections are similar to those for the MRPs. If an
Event of Default occurs, the Fund must deliver a notice to the Note purchasers
within five days, following which, a majority vote from Note purchasers may
declare all the Notes then outstanding to be immediately due and payable. The
maximum exposure is 70 calendar days assuming timely acceleration.
The Fund may also not declare or pay any dividend, distribution or similar
payment in respect of, or redeem any of, its shares if immediately before or
after giving effect to such action, there is or would be a breach of the Notes
Asset Coverage Test or the Fitch OC tests except, in the case of a breach of
the Fitch OC tests, to the extent required in order for the Fund to qualify as
a regulated investment company or to otherwise minimize or eliminate federal
or state income taxes payable by the Fund. Fitch views this as an added
incentive to cure and de-leverage in a timely manner, regardless of
acceleration by the Notes purchasers.
The Fund's investment objective is to seek current income. The Fund may also
achieve incidental capital appreciation. The Fund seeks to achieve its
investment objective through investment in Australian and Asian debt
THE FUND'S MANAGER AND ADVISERS
The Fund's investment manager is Aberdeen Asset Management Asia Limited, the
Fund's investment adviser is Aberdeen Asset Management Limited and the Fund's
sub-adviser is Aberdeen Asset Managers Limited. Each is a wholly-owned
subsidiary of Aberdeen Asset Management PLC. Aberdeen Asset Management PLC is
a global investment management group, managing assets for both institutions
and private individuals from offices around the world. Aberdeen manages $328.7
billion of third party assets globally as of April 30, 2013. Aberdeen is
publicly traded on the London Stock Exchange (FTSE 100 since 1991).
The rating is based on the terms of the MRPs stipulating mandatory collateral
maintenance and de-leveraging provisions in the event of asset coverage
declines. Should the Fund fail to cure an asset coverage breach, or the note
purchasers not declare the notes due and payable upon an event of default due
to an asset coverage breach, this may lengthen exposure to market value risk
and cause the ratings to be lowered by Fitch.
The ratings may also be sensitive to material changes in the credit quality or
market risk profile of the Fund. A material adverse deviation from Fitch
guidelines for any key rating driver could cause the ratings to be lowered by
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 complimentary closed-end fund research, opt-in at the following
Additional information is available at www.fitchratings.com.
The sources of information used to assess this rating were the public domain
and Aberdeen Asset Management.
Applicable Criteria and Related Research:
--'Fitch Rates Aberdeen Asia-Pacific Income Fund, Inc. Senior Secured Notes
'AAA' (June 13, 2013);
--'Taxable Closed-End Funds Dashboard' (June 4, 2013);
--'Taxable Closed-End Fund Leverage Ratios Evolve with Capital Structures'
(April 23, 2013);
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Taxable Closed-End Funds Dashboard
Taxable Closed-End Fund Leverage RatiosEvolve with Capital Structures
(Additional Leverage Capacity Possible On Future Term Out)
Rating Closed-End Fund Debt and Preferred Stock - Effective Aug. 16, 2011 to
Aug. 15, 2012
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Yuriy Layvand, CFA, +1-212-908-9191
Fitch Ratings, Inc.
One State Street Plaza
New York, New York, 10004
Benjamin Han, +1-212-908-9177
Manuel Arrive, +33 144 299 177
Brian Bertsch, New York, +1 212-908-0549
Press spacebar to pause and continue. Press esc to stop.