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.
KEY RATING DRIVERS
The 'AAA' rating is based on asset coverage provided to the preferred shares by the fund's portfolio, structural protections afforded by mandatory deleveraging 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.
As of Nov. 30, 2011, the fund's leverage was approximately $25 million, or 12% of the total assets of $214 million. Leverage consisted of entirely of AMPS.
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 this affirmation, 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 a specified timeframe.
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.
As of Nov.30, 2011, common equity securities constituted 79% of the portfolio, auction-rate preferred stock issued by other closed-end funds comprised 3% of the portfolio across two distinct securities, master limited partnership interests in various energy companies and one financial institution represented 6%, and a limited partnership investment in one long-short equity fund represented 3% of the portfolio. The remaining 9% of the portfolio consisted of a single sovereign security and cash equivalents.
With respect to the fund's investments in auction-rate preferred stock issued by other closed-end funds, the fund utilizes a third party pricing service to price such securities. 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 total 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 utilizes a higher maximum issuer concentration threshold at 20% for this exposure (in contrast to the maximum 10% threshold utilized for largest issuers per Fitch's criteria) when calculating Fitch total and net overcollateralization tests.
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 December 31, 2011, the co-investment advisors along with Rocky Mountain Advisers, LLC, an affiliate, had approximately $851.4 million of assets under management.
The rating assigned to the AMPS may be sensitive to material changes in the leverage composition, credit quality of portfolio assets 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 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, BIA and SIA.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria' (Aug. 16, 2011);
--'Distressed Debt Exchange' (Aug. 12, 2011).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
Distressed Debt Exchange -- Global Cross-Sector Criteria - Amended