BNY MELLON MUNICIPAL BOND INFRASTRUCTURE FUND, INC.
Fitch Ratings has affirmed the 'AA' Long-Term rating assigned to the
KEY RATING DRIVERS
The 'AA' rating primarily reflects:
Sufficient asset coverage provided to the preferred shares as calculated per the overcollateralization (OC) tests;
Structural protections afforded by mandatory deleveraging provisions in the event of asset coverage declines;
Legal and regulatory parameters that govern the fund's operations;
The capabilities of
FUND PROFILE
DMB is a non-diversified, closed-end management company. The fund's investment objective is to provide as high a level of current income exempt from regular federal income tax as is consistent with the preservation of capital. The fund seeks to achieve its investment objective through investment of at least 80% of its assets in municipal bonds issued to finance infrastructure sectors and projects in
Infrastructure sectors and projects include transportation (e.g., natural gas transmission and distribution, power plants, water treatment and distribution centers, wastewater treatment facilities, oil and gas pipelines), social infrastructure (e.g., schools, healthcare facilities, public facilities, convention centers), water and environment (e.g., drinking water, wastewater, solid waste, flood control, coastal management), and other similar public sectors and projects that support or facilitate the development or improvement of economic, health, and cultural and social standards in
LEVERAGE
As of
In a TOB transaction the fund transfers municipal bonds into a trust that issues two types of securities: short-term floating rate securities sold to third-party investors, and residual inverse floating rate interests which are issued to the fund that provided the municipal bond collateral to the TOB trust. Cash received from the sale of the short-term floating rating securities can be used by the fund to purchase additional fund assets.
Although this creates a degree of subordination risk for the preferred share investors, Fitch believes the risk is manageable. The rights of the holders of the floating rate securities to receive payments of principal and interest are fully secured by collateral of the applicable fund and are senior to the rights of holders of the rated preferred shares to receive dividends. The Fitch net OC test quantifies subordination risk by assessing asset coverage to the rated obligations after first repaying liabilities that are senior in the capital structure and each fund has Fitch net OC test results in excess of 100% at the assigned rating level.
Fitch believes there is minimal refinancing risk associated with DMB's preferred shares. The Fitch OC test results indicate the fund is sufficiently liquid to fully repay all of its leverage within a relatively brief 45-60 day exposure period, even during a time of substantial market stress. In addition, as maturity approaches, the preferred share transaction documents provide for a liquidity account that segregates assets in an amount at least equal to that of maturing securities and to converts the segregated assets to more liquid securities closer to the maturity date- minimizing the risk of the fund being forced to liquidate portfolio assets to provide for redemption of the preferred shares.
DERIVATIVES
DMB does not currently use derivatives for hedging or speculative purposes.
REMARKETING TERMS
The RVMTP Shares are subject to mandatory tender upon each 42-month anniversary of the effective date of the RVMTP Shares or upon the end of a special terms period (each an early term redemption date), subject to the option of the holders to retain the RVMTP Shares. RVMTP Shares that are neither retained by the holder nor successfully remarketed by the early term redemption date will be redeemed by the fund. Please see below for additional discussion of the special terms period.
SPECIAL TERMS PERIOD
At any time after the 24-month anniversary of the effective date, the fund may designate a special-terms period (STP) pursuant to a notice of special terms. Upon designation of the STP, the RVMTP Shares will be remarketed unless the holders elect to retain their shares. In order for the special terms to become effective, the RVMTP Shares of any holders who do not elect to retain their RVMTP Shares for the STP must be successfully remarketed.
Special terms may involve changes to terms of the RVMTP 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 re-evaluate the structure for any impact on the assigned rating.
Special terms may not affect the parity ranking of the RVMTP Shares relative to any other series of the fund's preferred shares, if any.
In addition, to become effective, special terms require approval of the board of directors of DMB and 100% of the Holders of the RVMTP Shares. After the STP elapses, terms will revert to those which were in effect as provided in the RVMTP Shares' governing documents.
ASSET COVERAGE
Compliance with the Fitch OC threshold under the Basic Maintenance Amount is tested monthly. Failure to cure a breach by the allotted cure date requires the redemption of sufficient preferred shares to restore the total and net OC ratios to 100%. The time allowed for the fund to restore compliance is consistent with Fitch's 60-business day criteria guideline. As of this review date, the fund's Fitch OC Tests pass at the 'AA' rating category guidelines per Fitch's closed-end fund criteria.
As of the same date, the fund's asset coverage ratio for the RVMTP Shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage threshold of 225% required by the fund's governing documents (Minimum Asset Coverage Level).
Additionally, the fund's Effective Leverage Ratio for the RVMTP Shares and floating-rate certificates of tender option bonds (TOBs) were below 45%, the maximum allowed by the RVMTP Shares governing documents. Fitch notes that the impact of the TOBs leverage is not captured under the asset coverage ratio as calculated in accordance with the 1940 Act, but is accounted for under the Fitch OC Tests and the Effective Leverage Ratio.
STRUCTURAL PROTECTIONS
Compliance with the Fitch OC Tests, Minimum Asset Coverage Level and Effective Leverage Ratio thresholds are evaluated periodically. Should the asset coverage tests decline below their minimum threshold amounts, under the terms of the RVMTP Shares the fund is required to cure the breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC Tests breaches), or by reducing leverage in a sufficient amount (for all test breaches) within a pre- specified time period. In the event of a breach of any of these thresholds, the allotted time to restore compliance is consistent with Fitch's criteria guidelines.
INVESTMENT MANAGER
The fund is managed by
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no potential for upgrade for the 'AA' Long-Term rating assigned to the RVMTP Shares, as this is the highest achievable rating based on the applicable criteria under Fitch's closed end fund criteria.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings assigned to the RVMTP Shares may be sensitive to material changes in the leverage level or 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 (including Fitch OC Test guidelines) could result in a rating downgrade;
Terms relevant to structural protections, including but not limited to the Fitch OC tests, asset coverage and effective leverage are set forth in the RVMTP Shares governing and offering documents. Any future changes to terms or future STPs 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 this rating were the public domain and
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.
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