<0> Fitch Rates Neuberger Berman Real Estate Securities Income Fund Preferred Stock ‘AA’ </0>
Fitch RatingsBrian Bertsch, +1-212-908-0549Media Relations, New YorkorPrimary Analyst:Yuriy Layvand, CFA, +1-212-908-9191DirectorFitch, Inc.One State Street PlazaNew York, New York 10004orSecondary Analyst:Benjamin Han, +1-212-908-9177orCommittee Chairperson:Aymeric Poizot, CFA, CAIA, +33-1-44-29-92-76Managing Director
Fitch Ratings assigns an ‘AA’ rating to the following mandatory redeemable preferred stock (MRPS) issued by Neuberger Berman Real Estate Securities Income Fund Inc. (NYSE: NRO), a non-diversified, closed-end fund advised by Neuberger Berman Management LLC (Advisor):
–,000,000 4.00% Series A MRPS, due Sept. 26, 2017.
KEY RATING DRIVERS
The ‘AA’ rating is based on sufficient asset coverage provided to the MRPS 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 the advisor.
DETAILS OF THE TRANSACTION
The closing date for the senior notes took place on Sept. 26, 2012. By issuing the preferred shares, the fund seeks to take advantage of the current interest rate environment that the fund believes allows it to lock in an attractive fixed-rate cost of financing for a portion of its leverage for a specified period.
FUND PROFILE AND LEVERAGE
As of Aug. 31, 2012, the fund managed 9 million in assets, consisting of 63% in REIT common stock and 37% in REIT preferred stock. The fund continues to utilize debt financing in the form of a committed credit facility for the remainder of its leverage. The Advisor believes that in the current market environment, the combination of equity and debt leverage may help provide greater flexibility and protection to the fund. The total amount of the fund’s leverage has increased slightly as a result of issuing the preferred shares.
At the time of the issuance, the fund’s asset coverage ratio for the newly issued MRPS, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), exceeded 225%, which is the minimum asset coverage required by transactional documents. Also, at the time of issuance, the fund’s asset coverage ratios as calculated in accordance with Fitch’s ‘AA’ overcollateralization (OC) tests described in Fitch’s published criteria, exceeded 100%, which is also the minimum asset coverage required by transactional documents.
Should the asset coverage tests for the MRPS decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the transactional documents require the funds to reposition portfolio assets or reduce leverage in a sufficient amount to restore compliance with the applicable tests.
THE FUND AND INVESTMENT PHILOSOPHY
The fund commenced its operations on Oct. 28, 2003. The fund’s primary investment objective is high current income and its secondary investment objective is capital appreciation. The fund’s investment strategy is to manage a portfolio with a broad mix of real estate securities through superior stock selection and property sector allocation.
Neuberger Berman Management LLC is an indirect subsidiary of Neuberger Berman Group LLC, which is a private, independent, employee-controlled investment manager founded in 1939. The firm employed more than 1700 employees and managed 4 billion in assets across equities, fixed income, hedge funds and private equity as of June 30, 2012.
The ratings may be sensitive to material changes in the credit quality or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be lowered by Fitch.
For additional information about Fitch closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch’s website.
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Additional information is available at ”.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 these ratings were the public domain and Neuberger Berman Management LLC.
Applicable Criteria and Related Research:
–’Taxable Closed-End Funds Reliant on Short-Term Debt Reap Low-Cost Funding at the Expense of Rollover Risk’ (Sept. 25, 2012);
–’Rating Closed-End Fund Debt and Preferred Stock’ (Aug. 15, 2012);
–’Leveraged Taxable CEFs: Bank Funding Drives ARPS’ (May 3, 2012);
–’Capital Link Closed-End Fund Slides’ (April 27, 2012)
–’2012 Outlook: Closed-End Fund Leverage’ (Dec. 19, 2011).
Applicable Criteria and Related Research:
2012 Outlook: Closed-End Fund Leverage
Capital Link Closed-End Fund Slides
Leveraged Taxable CEFs: Bank Funding Drives ARPS
Rating Closed-End Fund Debt and Preferred Stock