Reuters logo
TEXT-Fitch affirms AGIC Convertible Closed End Fund at 'AAA'
March 1, 2012 / 8:07 PM / in 6 years

TEXT-Fitch affirms AGIC Convertible Closed End Fund at 'AAA'

 (The following statement was released by the rating agency)	
 March 1 - Fitch Ratings has affirmed the 'AAA' ratings assigned to the
following auction rate preferred shares (ARPS) issued by AGIC Convertible &
Income Fund II (NYSE: NCZ), a closed-end fund sub-advised by Allianz
Global Investors Capital (AGIC):	
	
--$274,000,000 of ARPS consisting of Series A, B, C, D and E, each with a 	
liquidation preference of $25,000 per share.	
	
KEY RATING DRIVERS	
	
The affirmation follows Fitch's annual review of the fund. The 'AAA' ratings are	
based on sufficient asset coverage provided to the ARPS by the fund's underlying	
portfolio of assets, the structural protections afforded by mandatory cure 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 	
AGIC as the sub-advisor. Fitch's ratings assigned to the ARPS speak only to 	
timely repayment of interest and principal in accordance with the governing 	
documents and not to potential liquidity in the secondary market.	
	
LEVERAGE	
	
As of Jan. 31, 2012 the fund had assets of approximately $741 million, current 	
liabilities of $6 million and leverage of $274 million, or 37% of net assets. 	
Assets consisted of $726 million in cash-purchased securities and $15 million in	
synthetic convertible securities. Leverage consisted entirely of rated ARPS. 	
	
ASSET COVERAGE	
	
As of the same date, the fund's asset coverage ratios, as calculated in 	
accordance with the Fitch total and net overcollateralization tests (Fitch OC 	
Tests) per the 'AAA' rating guidelines outlined in Fitch's closed-end fund 	
criteria, were in excess of 100%, which is the minimum asset coverage amount 	
deemed consistent with an 'AAA' rating per Fitch's criteria. The fund's 	
governing documents require that asset coverage for the ARPS, as calculated in 	
accordance with the Fitch OC Tests, be maintained in excess of 100%. As such, 	
should the asset coverage decline below 100%, the governing documents require 	
the fund to alter the composition of its portfolio towards assets with lower 	
discount factors, or to reduce leverage in a sufficient amount to restore 	
compliance within a 38 business day period.	
	
On Aug. 16, 2011, Fitch published an update to its closed-end fund rating 	
criteria that includes several changes to the way the Fitch OC test is 	
calculated. There was no material effect of these changes on the Fitch OC tests 	
given the high diversification profile of the funds. AGIC expects to finalize 	
changes to the ARPS documents that incorporate the changes to updated criteria 	
in the near future, subject to approval by the funds' board of directors. In the	
mean time, Fitch has extended a grace period to the funds given the high asset 	
coverage, but may take rating action sooner if asset coverage declines. 	
	
Additionally, as of the same date the fund's asset coverage ratio for total 	
outstanding ARPS, as calculated by AGIC in accordance with the Investment 	
Company Act of 1940, was in excess of 200%, which is also a minimum asset 	
coverage required by the fund's governing documents.	
	
FUND PROFILES	
	
As of Jan. 31, 2012, the portfolio consisted mainly of high-yield corporate and 	
straight convertible securities with U.S. domicile issuers. The fund was highly 	
diversified by industry and issuer and therefore no additional overconcentration	
discount factor was applied in calculating the Fitch OC Tests. The fund is a 	
non-diversified, closed-end management investment company, registered under the 	
Investment Company Act of 1940, as amended.	
	
THE ADVISOR	
	
AGIC acts as the sub-adviser to the fund, performing all investment management 	
functions. As of Dec. 31, 2011, AGIC had $46.4 billion in assets under 	
management. Allianz Global Investors Fund Management, LLC (AGIFM) acts as the 	
advisor to the fund, performing all distribution, legal, operations and 	
compliance functions. AGIC and AGIFM are indirect, majority owned subsidiary of 	
Allianz SE. 	
	
RATING SENSITIVITY	
	
The ratings may be sensitive to material changes in the credit quality or market	
risk profiles of the fund. A material adverse deviation from Fitch guidelines 	
for any key rating driver could cause the rating to be lowered by Fitch. 	
Furthermore, ratings are sensitive to the fund's adoption of mandatory cure and 	
deleveraging provisions consistent with the 'AAA' levels outlined in Fitch's 	
updated Aug. 16, 2011 closed-end fund criteria. For additional information about	
Fitch closed-end fund ratings guidelines, please review the criteria referenced 	
below, which can be found on Fitch's web site.	
	
	
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, 	
AGIC and AGIFM.	
	
Applicable Criteria and Related Research:	
	
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011);	
	
--'Closed-End Funds: Derivatives Under Review (Increased Use and Limited 	
Transparency Are Key Considerations)' (Nov. 16, 2011);	
	
--'2012 Outlook: Closed-End Fund Leverage' (Dec. 19, 2011).	
	
Applicable Criteria and Related Research: 	
	
2012 Outlook: Closed-End Fund Leverage	
	
here	
	
Closed-End Funds: Derivatives Under Review (Increased Use and Limited 	
Transparency Are Key Considerations)	
	
here	
	
Rating Closed-End Fund Debt and Preferred Stock 	
	
here	
	
 (New York Ratings Team)	
 

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below