PIONEER MUNICIPAL HIGH INCOME FUND, INC. Fitch Affirms the Preferred Shares Issued by Two Pioneer Municipal Funds.
Fitch Ratings has affirmed the 'AA' long-term ratings assigned to the Series 2021 Variable Rate MuniFund Term Preferred Shares (VMTP Shares) issued by
KEY RATING DRIVERS
The ratings are supported by:
Sufficient asset coverage provided to the preferred shares by the underlying portfolio of assets;
The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;
The legal and regulatory parameters that govern each fund's operations;
The capabilities of Amundi US as investment advisor.
FUND PROFILES
The funds are CEFs regulated by the Investment Company Act of 1940. They are designed to pursue a high current income exempt from regular federal income tax with capital appreciation as a secondary objective. The funds invest primarily in municipal securities, the interest on which is exempt from regular federal income tax. The funds invest in high- yield and investment-grade municipal bonds. MAV and MHI are permitted to invest up to 60% of the portfolio in high-yield investments.
SPECIAL TERMS PERIOD
The VMTP shares transaction documents permit either fund to designate a special terms period (STP) pursuant to a notice of special terms at any time. A STP may also be designated by the fund acting at the direction of at least a majority of the applicable outstanding VMTP shares. Upon designation of the STP, the affected VMTP Shares will be remarketed unless the holders elect to retain their shares. In order for the special terms to become effective, the affected VMTP shares of any holders who do not elect to retain their VMTP Shares for the STP must be successfully remarketed.
Special terms may involve changes to terms of the VMTP shares' governing documents, including, but not limited to, the dividend terms, redemption provisions, required effective leverage ratio and additional amount payment provisions. If special terms become effective, Fitch will reevaluate the structure for any impact on the assigned rating.
Special terms may not affect the parity ranking of the VMTP shares relative to any other series of the applicable fund's preferred shares.
In addition, to become effective, special terms require board approval of the applicable fund and 100% of the holders of the affected VMTP Shares. After the STP elapses, terms will revert to those that were in effect as provided in the affected VMTP shares' governing documents.
ASSET COVERAGE
As of the review date, each fund's pro forma asset coverage ratio for total leverage, as calculated in accordance with the 1940 Act, was in excess of 225%. This is the minimum asset coverage ratio required by the fund's governing documents. Also, as of the same date, the pro forma effective leverage ratio for each fund was below the 45% maximum effective leverage ratio allowed by the governing documents of the preferred shares issued by the fund.
Should the fund's asset coverage tests decline below their minimum threshold amounts, the mandatory redemption provisions of the VMTP shares governing documents will require the fund to cure the breach by reducing leverage in a sufficient amount to restore compliance with the applicable test(s).
As of the review date, each funds' pro forma asset coverage ratio, as calculated in accordance with Fitch Total and Net Overcollateralization Tests (Fitch OC tests) per the 'AA' rating guidelines, were in excess of 100%.
STRESS TESTS
Fitch performed stress testing on the funds in order to assess the strength of the structural protections available to the preferred shares compared with the stresses outlined in Fitch's Closed-End Fund Rating Criteria. This test provided for a one rating notch downgrade for each security held in the portfolio of each fund. The stress applied had minimal impact on the model results, which remained consistent with the assigned rating level. Given the minimal impact, Fitch views the fund's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with a 'AA' rating.
INVESTMENT MANAGER
Amundi US acts as the funds' investment advisor. Amundi US is an indirect, wholly owned subsidiary of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is not currently envisioned as Fitch's CEF criteria effectively caps CEF ratings at 'AA'.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
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 fund, as described above;
A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be downgraded by Fitch;
For the VMTP shares, terms relevant to structural protections, including asset coverage and effective leverage are set forth in the applicable supplement for these securities. Any future changes to terms that weaken the structural protections may have Negative rating implications.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
SOURCES OF INFORMATION
The sources of information used to assess these ratings were the public domain and Amundi US.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Prior
723762407
LT
AA
Affirmed
AA
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