Duff & Phelps Select fund loosens rules on refinancing preferreds

By Toni Weeks

San Diego, May 14 - Shareholders of the DNP Select Income Fund Inc. (DNP) and Duff & Phelps Utility and Corporate Bond Trust Inc. (DUC) voted on charter amendments that would permit the funds to negotiate a lower rating on their preferred shares in exchange for being allowed to draw more debt to refinance the preferreds.

At the May 10 annual meeting of the funds, the proposed amendments to the charter received the required aggregate vote of DUC's common and preferred shareholders and the separate class vote, and those amendments are now in effect. The proposed amendments to DNP's charter also received a favorable vote of DNP's common and preferred shareholders but were defeated in the separate class vote; thus, those amendments were not approved.

The two closed-end registered investment companies advised by Chicago-based Duff & Phelps Investment Management Co. provided the update in a press release on their efforts to provide additional liquidity to holders of preferreds in light of the persistent failures in the auction markets.

As previously reported, each fund has retired a portion of its preferreds with debt under a credit facility but has been unable to refinance additional preferreds with debt.

The funds cannot incur debt or enter into reverse repurchase agreements without departing from the guidelines established by the two principal rating agencies. Another factor restraining the funds from refinancing preferred shares with debt is that the Investment Company Act of 1940 requires a fund to have 300% asset coverage for its senior debt at the time of any new borrowings.

The funds' charters permit departures from the rating agency guidelines but only if the rating agencies confirm in writing that the departures would not adversely affect the then-current rating of the preferreds.

In 2009, when the funds received the confirmation from the rating agencies to permit them to enter into their existing credit facilities, one of the rating agencies imposed a limitation that, in order to maintain the AAA rating on the preferreds, no more than 60% of the funds' leverage could be in the form of debt.

On Dec. 12, the board of directors of the funds charged the adviser with formulating a proposed amendment to the funds' charters that would permit the funds to negotiate an arrangement with the rating agencies under which the funds could accept a lower rating on the preferreds in exchange for being allowed to draw a higher percentage of debt leverage.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.