Fitch cuts four Pimco fund preferreds

Fitch Ratings said it downgraded the ratings assigned to the auction-rate preferred shares issued by four closed-end funds managed by Pacific Investment Management Co., LLC (Pimco) to AA from AAA and placed the ratings on rating watch negative.

“The downgrades and RWN reflect recent extreme market volatility and reduced asset liquidity, which have quickly eroded asset coverage cushions for closed-end funds and challenged fund managers' ability to deleverage,” the agency said in a press release.

“While the Pimco funds were able to manage leverage and asset coverage in line with required guidelines specified in transaction documentation, risks remain with regards to the funds' ability to sell assets at sufficient valuations at stress levels corresponding to the current high ratings,” Fitch said.

The funds are Pimco Corporate & Income Strategy Fund, Pimco High Income Fund, Pimco Income Strategy Fund II and Pimco Income Strategy Fund.

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