Fitch Ratings has af?rmed the 'A' the long-term ratings assigned to the medium-term notes series and the 'F1' short-term ratings assigned to the short-term notes programs of seven Puerto Rico Investment Family of Funds closed-end funds (CEFs), co-advised by Popular Asset Management and UBS Asset Managers of Puerto Rico.

Please see the Rating Actions table below for additional details.

KEY RATING DRIVERS

The ratings are supported by the following:

The asset coverage requirements for each series of notes at the individual, sub-account level when notes are outstanding;

The structural protections afforded by mandatory collateral maintenance provisions in the event of asset coverage declines;

The legal and regulatory parameters that govern the funds' operations;

The capabilities of UBS Asset Managers of Puerto Rico and Popular Asset Management LLC as co-advisers.

At the time of the rating af?rmations, none of the funds had rated notes outstanding. As such, the rating af?rmations are not driven by current asset coverage levels but by the structural protections, legal and regulatory parameters and investment adviser capability rating drivers listed above.

FUND PROFILE

The funds are non-diversified, closed-end management investment companies organized under the laws of the Commonwealth of Puerto Rico and registered as investment companies under the U.S. Investment Company Act of 1940, as amended (the 1940 Act).

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law and amended the 1940 Act, to repeal the exemption from its registration of investment companies created under the laws of Puerto Rico, the U.S. Virgin Islands, or any other U.S. possession. The repeal of the exemption took effect on May 24, 2021. Each fund is currently registered under the 1940 Act, and must now register its future offerings of securities under the U.S. Securities Act of 1933, as amended, absent any available exception. The funds suspended their offerings of securities pending completion of registration under the U.S. Securities Act of 1933. Once the process is completed Fitch expects the funds to begin to issue rated medium- and short-term notes.

The funds would normally invest at least 67% of total assets in securities issued by Puerto Rican entities. These include securities issued by the Commonwealth of Puerto Rico, Puerto Rico mortgage-backed and asset-backed securities and corporate obligations and preferred stock of Puerto Rican entities. While the funds intend to comply with the 67% investment requirement as market conditions permit, the funds' ability to procure sufficient Puerto Rico securities which meet the Funds' investment criteria, has been constrained, due to the volatility affecting the Puerto Rico bond market since 2013 and the fact that the Puerto Rico Government is currently in the process of restructuring its outstanding debt. Because the funds are presently unable to procure sufficient amounts of such Puerto Rico securities, the funds have acquired investments in securities of non-Puerto Rico issuers which satisfy the funds' investment criteria.

The funds are heavily exposed to bonds issued by the Corporacion del Fondo de Interes Apremiante (COFINA), which is a government-owned corporation of Puerto Rico that issues government bonds backed primarily by sales tax revenues to pay and refinance the public debt of Puerto Rico. The funds described in this release have COFINA concentrations ranging from about 30% to more than 70%. COFINA bonds are unrated and possess the potential for significant price volatility in a stressful market environment.

Such bonds will not be eligible to collateralize any notes issued under the rated notes programs (see structural protections below) as securities pledged for this purpose will be limited to obligations of higher credit quality such as U.S. government and municipal bonds. However, in a stressful scenario where the market value of segregated capital declined, these concentrations could provide lower than expected levels of liquidity, which may hinder a fund's ability to segregate additional pledged securities as needed to maintain collateral obligations.

If exposure to unrated or below-investment-grade assets such as COFINA remain at current levels, to mitigate liquidity risks at the assigned ratings, Fitch believes effective leverage (the ratio of total leverage as a percentage of the total fund capital structure) should remain at or below the 25% range. If rated notes are issued in the future, Fitch will carefully monitor overall leverage levels in these funds relative to the quality of both pledged and unencumbered assets to ensure the funds remain able to meet collateral obligations as provided in the transaction documents.

LEVERAGE

The funds may borrow under the note programs up to a maximum of 33 1/3% of the fair market value of fund assets, plus other borrowings for temporary or emergency purposes up to an additional 5% of the fair market value of fund assets.

Currently, the funds only utilize leverage in the form of reverse repurchase agreements although medium- and short-term notes issuances are expected in the future. In a reverse repo agreement, the fund borrows cash from a counterparty, and, in exchange, the fund provides securities as collateral for the borrowed cash along with an agreement to repurchase the collateral from the counterparty at a specified future date.

STRUCTURAL PROTECTIONS

At the time of the rating af?rmations, the funds did not have any rated notes outstanding and therefore were not required to maintain Fitch Overcollateralization Test (OC) asset coverage levels. When rated notes are issued and outstanding, Fitch expects that each fund will segregate collateral for the medium-term note series and short-term note series separately in a collateral maintenance account (CMA). The Fitch OC tests calculate asset coverage available to the notes based on discounted market price loss expectations and diversi?cation of the assets in each segregated collateral account. Maintenance of the CMA eliminates any potential refinancing risk or subordination risk associated with the note programs.

Should a fund's Fitch OC test asset coverage decline below 100% (as tested weekly) and not be cured within the pre-speci?ed timeframe of ?ve business days, the governing documents would require the collateral agent to take one or more of the following actions restore coverage to at least 100%: (i) pledge additional securities to the CMA; (ii) deposit cash in the CMA for the relevant series of securities; or (iii) sell pledged securities and deposit the amount needed in the CMA segregated account for the relevant series of securities.

INVESTMENT MANAGER

UBS Asset Managers of Puerto Rico and Popular Asset Management LLC are the funds' co-investment advisors. Subject to the supervision of each fund's board of directors, they are responsible for each fund's overall investment strategy and implementation. Popular Asset Management LLC is an affiliate of Banco Popular de Puerto Rico, while UBS Asset Managers of Puerto Rico is a division of UBS Trust Company of Puerto Rico, which in turn is an af?liate of UBS Financial Services Inc.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Although unlikely, upgrades to medium- or short-term notes currently rated 'A' could potentially be supported by a material change in portfolio composition toward less volatile and/or more liquid asset classes or changes in the funds' market profile, structure or deleveraging mechanisms, which serve to materially reduce inherent market value risks.

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 funds' assets, as described above;

A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the ratings;

The ratings could be downgraded if asset coverage cushions erode as a result of market volatility, or if Fitch believes the assets the funds invest in, particularly the COFINA bonds, are unlikely to retain suf?cient liquidity and price stability at the current rating stress levels. Fitch deems the level of future market value decline these funds would have to experience to incur a sustained breach in Fitch OC test coverage at the assigned rating levels as unlikely, as Fitch believes the fund manager would take action to restore asset coverage as needed to cause the rated securities to maintain passing Fitch OC test margins at the assigned rating level;

Changes in the supply-demand dynamics with respect to invested collateral types may in?uence Fitch's analytical approach to the liquidity of underlying collateral types. In addition, the amount of total leverage assumed by a fund could also in?uence Fitch's analytical conclusion if such leverage increased the likelihood of a bankruptcy stay with respect to the overall fund.

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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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