Fitch Ratings has affirmed the 'AAA' ratings assigned to the following auction market preferred shares (AMPS) issued by two leveraged closed-end funds advised by Pioneer Investments Management Inc. (Pioneer):
Pioneer Floating Rate Trust (NYSE: PHD):
--$60,850,000 of auction market preferred shares, series M7 with a liquidation preference of $25,000 per share;
--$60,800,000 of auction market preferred shares, series Th7 with a liquidation preference of $25,000 per share;
--$60,800,000 of auction market preferred shares, series W7 with a liquidation preference of $25,000 per share.
Pioneer High Income Trust (NYSE: PHT):
--$50,500,000 of auction market preferred shares, series M, with a liquidation preference of $25,000 per share;
--$50,500,000 of auction market preferred shares, series W, with a liquidation preference of $25,000 per share;
--$50,000,000 of auction market preferred shares, series TH, with a liquidation preference of $25,000 per share.
KEY RATING DRIVERS
The affirmation of the 'AAA' ratings reflects:
--Sufficient asset coverage provided to the AMPS by the underlying portfolios of assets;
--The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the funds' operations;
--The capabilities of Pioneer as investment advisor.
Fitch's ratings assigned to the AMPS speak only to the credit risk of the securities and not to potential liquidity in the secondary market.
As of Jan. 27, 2012, PHD's total assets were approximately $507 million, and total leverage, consisting of AMPS, was approximately $182 million, or 35% of total assets. As of the same date, PHT's total assets were approximately $526 million and total leverage, consisting of AMPS was approximately $151 million, or 29% of total assets.
At the time of the rating affirmations, the funds' asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AAA' rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%, which is the minimum asset coverage amount deemed consistent with an 'AAA' rating. The funds' governing documents require that asset coverage for the ARPS, as calculated in accordance with the Fitch OC tests, be maintained in excess of 100%. As such, should the asset coverage decline below 100%, the governing documents require the funds to restore compliance within a 40 business day period.
Additionally, as of the same date, the funds' asset coverage ratios for total outstanding AMPS, as calculated in accordance with Pioneer's interpretation of the Investment Company Act of 1940, were in excess of 200%, which is also a minimum asset coverage required by the funds' governing documents.
PIONEER FLOATING RATE TRUST (PHD):
PHD is a diversified, closed-end management investment company, registered under the 1940 Act that commenced operations in December 2004. The fund's investment objective is to seek high current income with a secondary objective of capital preservation. The fund seeks to achieve these objectives by investing at least 80% of its assets in senior floating-rate loans, all or any portion of which may be below investment-grade. The fund also may invest in other floating- and variable-rate instruments, including senior loans, second lien loans and high-yield corporate bonds. The fund does not have a policy of maintaining a specific average credit quality, or a minimum portion of its portfolio that must be rated investment grade.
As of Jan. 27, 2012, leveraged loans constituted approximately 84% of the portfolio. As of the same date, approximately 15% of the portfolio was invested in the healthcare sector and approximately 13% was invested in the computer and electronics, telecommunications sector. Other notable industry concentrations included automobiles, building and materials, chemicals (9%), business services (8%) and aerospace and defense (5%).
PIONEER HIGH INCOME TRUST (PHT):
PHT is a diversified, closed-end management investment company, registered under the 1940 Act that commenced operations in April 2002. The fund's investment objective is to seek high current income with a secondary objective of capital appreciation. The fund seeks to achieve these objectives by investing at least 80% of its assets below investment-grade (high-yield) debt securities, loans and preferred stock. While the fund may have some exposure to emerging market debt and international high-yield bonds, the focus is on domestic high-yield securities. The fund may also invest up to 50% of the total assets in illiquid securities.
As of Jan. 27, 2012, 88% of the portfolio consisted of corporate bonds, with the remainder of the portfolio invested in municipal bonds, cash equivalents, collateralized mortgage obligations, catastrophe bonds, convertible preferred stock and common stock. Banking, finance and insurance was the fund's largest sector concentration and accounted for approximately 13% of the portfolio. The next largest sector concentrations were automobiles, building and materials, chemicals (11%), energy (oil and gas) (10%), healthcare (7%), and business services (6%).
Pioneer acts as the funds' investment advisor and is a wholly owned subsidiary of Pioneer Global Asset Management S.p.A., an investment management arm of UniCredit Banking Group. As of Dec. 31, 2011, Pioneer Global Asset Management S.p.A. had approximately $210 billion of assets under management.
The assigned ratings may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch.
For additional information about Fitch's 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 these ratings were Pioneer and the public domain.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011);
--'Global Rating Criteria for Asset-Backed Commercial Paper' (Nov. 10, 2011);
--'2012 Outlook: Closed-End Fund Leverage' (Dec. 19, 2011);
--'Closed-End Funds: Derivatives Under Review' (Nov. 16, 2011);
--'Primer: CEF Variable-Rate Demand Preferred Shares' (Oct. 27, 2011).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
Global Rating Criteria for Asset-Backed Commercial Paper
2012 Outlook: Closed-End Fund Leverage
Closed-End Funds: Derivatives Under Review (Increased Use and Limited Transparency Are Key Considerations)
Primer: CEF Variable-Rate Demand Preferred Shares (Closed-End Fund VRDPs Target Short-Term, Money Market Investors)