May 15, 2015 / 8:58 AM / 2 years ago

Fitch Publishes Report Comparing Leverage in UK ITs and US CEFs

(The following statement was released by the rating agency) LONDON, May 15 (Fitch) Fitch Ratings has published a special report that analyses and compares the use of leverage in UK investment trusts (ITs) against US closed-end funds (CEFs). ITs on average employed gross leverage of 9% at end-March 2015, which is low compared with US taxable CEFs that used on average 25% leverage, while US municipal CEFs use higher levels still. Fitch estimates ITs used a total of GBP6bn of leverage as of end-March 2015, a fraction of the absolute size of US taxable CEF leverage (USD54bn; GBP35bn). US leverage ratios are typically reported gross, and can use derivatives off balance-sheet. Both ITs and taxable US CEFs use bank debt as their main leverage source, although taxable US CEFs use a more diverse range of funding sources compared with ITs. There are no regulatory limits to the amount of leverage that an IT can use, but each IT's Board of Directors will impose restrictions on the maximum amount of leverage that can be used. In the US, CEFs are regulated by the Investment Company Act of 1940, which applies various restrictions to the amount of leverage allowed. Fitch rates debt and preferred securities issued by ITs and offshore CEFs under specific criteria developed for non-US CEFs. Fitch has separate criteria for rating US CEFs, and in the US, Fitch rates about USD31bn of debt and preferred stock issued across 220 US CEFs. The report, "UK Investment Trusts - Use of Leverage", and is available at www.fitchratings.com or by clicking on the link in this media release. Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: UK Investment Trusts - Use of Leverage here Rating Debt and Preferred Securities Issued by Non-US Closed-End Funds here Rating Closed-End Fund Debt and Preferred Stock here Use of Leverage in U.S. Closed-End Funds (Slidedeck Apr-2015) here European Funds Discover Real Assets here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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