ABRDN ASIA-PACIFIC INCOME FUND INC Fitch Ratings has affirmed the 'A' Long-Term Ratings (LT Ratings) assigned to the senior notes and mandatory redeemable preferred shares (MRPS) issued by Aberdeen Asia-Paci?c Income Fund (FAX).
KEY RATING DRIVERS
The ratings are supported by:
Suf?cient asset coverage provided to the notes and MRPS calculated per Fitch's asset coverage tests and published rating criteria at the 'A' rating level.
The structural protections afforded by mandatory collateral maintenance and deleveraging provisions in the event of asset coverage declines.
The legal and regulatory parameters that govern the fund's operations.
The capabilities of abrdn
FUND PROFILE
FAX is incorporated as a closed-end investment company regulated by the Investment Company Act of 1940 (the 1940 Act). FAX's principal investment objective is to seek current income and incidental capital appreciation. To achieve its investment objectives, the fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in
ASSET COVERAGE
As of the review date, 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 'A' rating guidelines outlined in Fitch's closed-end fund criteria, were in excess of 100%. This is the minimum Fitch OC test threshold required by the fund's governing documents.
Also as of the review date, the fund's asset coverage ratios for the notes and MRPS, as calculated in accordance with the 1940 Act, were in excess of 300% (Senior 1940 Act Asset Coverage Test) and 225% (Total 1940 Act Asset Coverage Test), which are the minimum asset coverage tests required by the note purchase agreement and MRPS purchase agreement, respectively.
NOTES STRUCTURAL PROTECTIONS
Should the Senior 1940 Act Asset Coverage Test or the Fitch OC test decline below their minimum threshold amounts (as tested monthly), under the terms of the notes, the fund is required to deliver notice to the note purchasers within ?ve days of becoming aware of such fact. The fund manager is then required to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC test breaches), or by reducing leverage in a suf?cient amount (for both the Fitch OC test and Senior 1940 Act Asset Coverage Test breaches) within a pre-speci?ed period consistent with Fitch's criteria.
Failure to cure an asset coverage breach as described above is an event of default (EOD) under the terms of the notes, following which, a majority vote from note purchasers may declare all the notes then outstanding to be immediately due and payable.
MRPS STRUCTURAL PROTECTIONS
Should the Total 1940 Act Asset Coverage Test or the Fitch OC test for the MRPS decline below their minimum threshold amounts (as tested monthly), the fund is required to deliver notice to the MRPS purchasers within ?ve 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 test breaches), or by reducing leverage in a suf?cient amount (for both the Fitch OC tests and Total 1940 Act Asset Coverage Test breaches) within a pre-speci?ed period consistent with Fitch's criteria.
SUBORDINATION RISK
Certain terms exist in the creditor agreements governing the revolving credit facility and the rated notes that could restrict or delay payments to the MRPS shareholders if the fund fails to maintain certain asset coverage requirements and/or if there is an EOD under the creditor agreement immediately before or after a payment to the MRPS shareholders.
MRPS dividends 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. The terms of the creditor agreements that provide a cure period to resolve any breaches of the above noted triggers prior to the declaration of an EOD serve as an additional partial mitigant.
INVESTMENT MANAGER
The fund's investment manager is
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is not currently envisioned as FAX invests largely in securities that are ineligible for credit at the 'AA' rating level
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund's assets, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the ratings;
A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be downgraded by Fitch;
The ratings could be downgraded if asset coverage cushions erode as a result of market volatility, or if Fitch believes the assets the fund invests in are unlikely to retain suf?cient liquidity and price stability at the current rating stress levels.
While FAX's notes and MRPS are currently equalized at the 'A' rating level, future events could result in further differentiation between classes based on seniority.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
SOURCES OF INFORMATION
The sources of information used to assess this rating were the public domain and abrdn plc.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Prior
003009A@6
LT
A
Affirmed
A
0030092#3
LT
A
Affirmed
A
003009A#4
LT
A
Affirmed
A
003009B*7
LT
A
Affirmed
A
003009B@5
LT
A
Affirmed
A
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Additional information is available on www.fitchratings.com
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