Fitch Ratings assigns an 'AAA' rating to the following Variable Rate Demand Preferred Shares (VRDP Shares) issued by five municipal closed-end funds managed by BlackRock Advisors, LLC.
Blackrock Virginia Municipal Bond Trust (AMEX: BHV)
--$11,600,000 of Series W-7 VRDP Shares, due July 2042, with a liquidation preference of $100,000 per share;
Blackrock Maryland Municipal Bond Trust (AMEX: BZM)
--$16,000,000 of Series W-7 VRDP Shares, due July 2042, with a liquidation preference of $100,000 per share;
The Blackrock Pennsylvania Strategic Municipal Trust (AMEX: BPS)
--$16,300,000 of Series W-7 VRDP Shares, due July 2042, with a liquidation preference of $100,000 per share;
The Massachusetts Health & Education Tax-Exempt Trust (AMEX: MHE)
--$18,500,000 of Series W-7 VRDP Shares, due July 2042, with a liquidation preference of $100,000 per share;
Blackrock New Jersey Municipal Bond Trust (AMEX: BLJ)
--$18,700,000 of Series W-7 VRDP Shares, due July 2042, with a liquidation preference of $100,000 per share.
Closing took place on June 14, 2012. Funds will use proceeds from the issuance to fully redeem their outstanding auction market preferred shares.
KEY RATING DRIVERS
The 'AAA' long-term rating primarily reflects:
--Sufficient asset coverage provided to the VRDP Shares as calculated per the fund's asset coverage tests;
--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; and
--The capabilities of BlackRock Advisors, LLC. as investment advisor.
SPECIAL RATE PERIOD
The VRDP Shares are subject to a special rate period of approximately three years (until June 2015), commencing on the closing date (the Special Rate Period). During the Special Rate Period, the VRDP Shares are not subject to optional or mandatory tender events and will not be remarketed by a remarketing agent pursuant to such events.
After June 2015, holders of VRDP Shares and the funds may mutually elect to extend the Special Rate Period. If the Special Rate Period is, however, not extended, the VRDP Shares will revert to remarketable securities available for purchase by qualified third party investors. These VRDP Shares are expected to benefit from an unconditional and irrevocable purchase obligation by the liquidity provider upon optional or mandatory tender events, similar to other Fitch-rated VRDP Shares issued by Blackrock closed-end funds.
In this event, Fitch would expect to assign a short-term rating to the VRDP Shares based on the rating of the liquidity provider, which is currently Citibank, N.A. ('A/F1', Outlook Stable). However, these ratings as well as the designated liquidity provider are both subject to change in the future, and Fitch's short-term rating of the VRDP Shares would be a function of that.
As of end of April 2012, each funds' asset coverage ratio, as calculated in accordance with the Fitch total and net over-collateralization (OC) tests per the 'AAA' rating guidelines outlined in Fitch's criteria, were in excess of 100%, which is the minimum threshold required under the VRDP Shares' transactional documents. Fitch's net OC test captures the structural subordination of the VRDP Shares to the funds' tender option bond leverage.
As of the same date, each funds' asset coverage ratio for the VRDP Shares, as calculated in accordance with the Investment Company Act of 1940, were in excess of the minimum asset coverage threshold of 225% as currently set by the terms of the fee agreement between each fund and the liquidity provider and the VRDP Shares' transactional documents.
The funds maintain a diversified capital structure, utilizing both VRDP shares and tender option bonds. Target leverage levels are between 35% and 40%. Each fund covenanted with the liquidity provider to maintain an effective leverage ratio that captures both leverage forms at below 45% (or 46% if the increase in the ratio is due exclusively to asset market value volatility). As of end of May 2012, each fund's effective leverage ratio was below 45%.
In the event of asset coverage decline, the VRDP Shares' transactional documents require a fund to reduce leverage in order to restore compliance with the particular test(s) breaching the required threshold(s).
Each fund invests at least 80% of its portfolio in securities exempt from both federal and state income tax (for residents residing in that state). Each fund also primarily invests at least 80% of its portfolio in securities rated 'BBB' by Fitch or equivalent.
BlackRock Advisors, LLC., a subsidiary of BlackRock, Inc., is the advisor to the funds, responsible for the overall investment strategies and their implementation. BlackRock, Inc. and its affiliates had approximately $3.513 trillion of assets under management as of Dec. 31, 2011.
The ratings assigned to the VRDP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality, portfolio diversification or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause 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'.
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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 BlackRock Advisors, LLC.
Applicable Criteria and Related Research:
--'Municipal CEFs Refinance Pre-Crisis ARPS' (May 3, 2012);
--'Leveraged Taxable CEFs: Bank Funding Drives ARPS' (May 3, 2012);
--'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);
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011).
Applicable Criteria and Related Research:
Municipal CEFs Refinance Pre-Crisis ARPS
Leveraged Taxable CEFs: Bank Funding Drives ARPS
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)
Rating Closed-End Fund Debt and Preferred Stock