Around US$1bn in preferred shares issued by five Pimco funds have been placed under review for possible downgrade by Moody's, the credit rating agency.
The shares, with total value of $1.02bn spread across five funds, are currently rated Aaa but could face a downgrade after the rating agency cited concerns about declining asset coverage and secondary market liquidity for some fund assets supporting rated obligations and increased utilisation of certain derivative instruments in the leveraged investment portfolios.
Although rated leverage is currently at modest levels and recent Nav performance has been strong for each of the funds, the recent run up in prices in many of the underlying holdings highlights volatility in the high yield sector,” Moody’s said in a statement.
The funds being referred to were the Pimco Corporate Opportunity Fund, the Pimco Corporate Income Fund, the Pimco High Income Fund, the Pimco Income Strategy Fund and the Pimco Income Strategy Fund II.
Moody’s explained: “In the past twelve months, the asset coverage levels for these funds have deteriorated significantly from recent highs of approximately 125% to levels that are only marginally above the minimum BMA requirement for their current rating.”
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