Fitch Publishes 3Q15 Closed-End Fund Leverage Dashboard; MLP Funds Come Into Focus
The largest increase was in equity CEFs with leverage ratios increasing to 36.2%. In particular, MLP CEFs were under pressure as net asset values (NAVs) declined 43.0% over the last 12 months. Commodity markets and related assets sold off, increasing active management of the funds' capital structure. NAV declines peaked on Sept. 28 and 29 pushing average equity CEF leverage ratios, which include MLP CEFs, to a high of 37.5%. Fitch observes that these stresses influenced some CEF managers to deleverage, keeping leverage within debt and preferred stock covenants and their own internal guidelines.
Leverage ratios continue to be a main driver of CEF ratings. Fitch expects managers to continue to focus on keeping leverage and asset coverage ratios stable amid heightened asset volatility. As a result, we do not expect any negative rating actions in the near term.