Fitch Ratings has affirmed the 'AAA' ratings on almost $2 billion of Variable Rate Muni Term Preferred Shares (VMTP Shares) issued by nine municipal closed-end funds managed by Invesco Advisers, Inc. (NYSE:IVZ, Invesco). A complete list of the funds and the associated VMTP Shares is included at the end of this release.
KEY RATING DRIVERS
The 'AAA' long-term ratings primarily reflect:
--Sufficient asset coverage provided to the preferred shares as calculated per the funds' over-collateralization (OC) tests;
--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 Invesco as investment advisor.
As of March 31, 2013, the funds' asset coverage ratios for total outstanding preferred shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage of 225% required by the funds' governing documents (Preferred Shares Asset Coverage Test).
As of the same date, the funds' effective leverage ratios were below the 45% maximum leverage ratio allowed by the funds' governing documents for the VMTP shares.
In the event of asset coverage declines, the funds' governing documents will require the funds to reduce leverage in order to restore compliance with the OC test(s) breaching the required threshold(s).
The funds are closed-end management investment companies regulated by the Investment Company Act of 1940.
Invesco Advisers, Inc., an indirect, wholly owned subsidiary of Invesco, Ltd., is the funds' adviser, responsible for the funds' overall investment strategies and their implementation. Invesco Ltd. had approximately $748.5 billion of assets under management as of April 30, 2013.
In the stress tests performed by Fitch, asset coverage available to the VMTP Shares fell below the 'AAA' threshold, and instead passed at a 'AA' rating level only under scenarios judged to be unlikely, such as an increase to the funds' issuer concentration, while simultaneously migrating the portfolios to 80% 'BBB', 10+ years to maturity bonds and 20% high yield bonds.
Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views the funds' permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.
The ratings assigned to the preferred shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the funds, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.
The funds have the ability to assume economic leverage through derivative transactions which may not be captured by the funds' Preferred Shares Asset Coverage test or Effective Leverage Ratio. The funds currently do not engage in derivative activities for speculative purposes and do not envision engaging in such activity in the future. Material derivative exposure in the future could have potential negative rating implications if it adversely affects asset coverage available to rated preferred shares.
Fitch has affirmed the following ratings:
--Invesco Advantage Municipal Income Trust II (VKI)
$231,000,000 of Series 2015/6-VKI VMTP Shares, due June ?1, 2015, at 'AAA';
--Invesco California Value Municipal Income Trust (VCV)
$188,300,000 of Series 2015/6-VCV VMTP Shares, due June 1 2015, at 'AAA';
--Invesco Municipal Opportunity Trust (VMO)
$367,600,000 of Series 2015/6-VMO VMTP Shares, due June 1, 2015, at 'AAA';
--Invesco Municipal Trust (VKQ)
$262,800,000 of Series 2015/12-VKQ VMTP Shares, due Dec. 1, 2015, at 'AAA';
--Invesco Pennsylvania Value Municipal Income Trust ?(VPV)
$130,100,000 of Series 2015/6-VPV VMTP Shares, due June ?1, 2015, at 'AAA';
--Invesco Quality Municipal Income Trust (IQI)
$213,900,000 of Series 2015/12-IQI VMTP Shares, due Dec. 1, 2015, at 'AAA';
--Invesco Trust for Investment Grade Municipals ?(VGM)
$273,300,000 of Series 2015/6-VGM VMTP Shares, due June ?1, 2015, at 'AAA';
--Invesco Trust For Investment Grade New York ?Municipals (VTN)
$90,400,000 of Series 2015/6-VTN VMTP Shares, due June 1, 2015, at 'AAA';
--Invesco Value Municipal Income Trust (IIM)
$143,100,000 of Series 2015/6-IIM VMTP Shares, due June 1 2015, at 'AAA'.
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 sources of information used to assess this rating were the public domain and Invesco.
To receive Fitch's forthcoming research on closed-end funds please go to: http://forms.fitchratings.com/forms/FAMCEFOptinform
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012).
Applicable Criteria and Related Research
Rating Closed-End Fund Debt and Preferred Stock
Russ Thomas, +1 312-368-3189
Fitch Ratings, Inc.
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Ralph R. Aurora, +1 212-908-0528
Davie Rodriguez, CFA, +1 212-908-0386
Brian Bertsch, +1 212-908-0549