Fitch Rates Kayne Anderson Fund New Preferred Stock 'AA'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA' rating to the following new issue of mandatory redeemable preferred shares (MRPS) issued by Kayne Anderson Energy Development Company (NYSE: KED), a non-diversified closed-end fund managed by KA Fund Advisors, LLC.

--$25,000,000 of Series A 3.37% MRPS, due April 10, 2020.

KEY RATING DRIVERS

The rating assignment reflects:

--Sufficient pro forma asset coverage provided to debt and MRPS as calculated per the fund's asset coverage tests;

--The structural protections afforded by mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines;

--The legal and regulatory parameters that govern the fund's operations;

--The capabilities of KA Fund Advisors, LLC as investment advisor.

FUND PROFILES

The fund is a non-diversified, closed-end fund, which commenced its operations on Sept. 21, 2006. The fund's investment objective is to obtain a high level of total return with an emphasis on current income. The fund seeks to achieve that investment objective by investing principally in equity and debt securities of companies in the energy industry, such as energy related master limited partnerships (MLPs), midstream companies and marine transportation companies.

LEVERAGE

As of Feb. 28, 2015, the fund's pro forma total assets was approximately $497 million supporting leverage of $25 million in MRPS and $98 million in bank borrowing. Total leverage ratio was approximately 25%. The fund also carried deferred tax liability of approximately $75 million.

ASSET COVERAGE

As of Feb. 28, 2015, the fund's pro forma asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AA' rating guidelines for the MRPS, outlined in Fitch's closed-end fund criteria, were in excess of 100%. These are the minimum asset coverage guideline required by the fund's governing documents.

The Fitch OC tests calculate standardized asset coverage by applying haircuts to portfolio holdings based on riskiness and diversification of the assets and measuring their ability to cover both on- and off-balance-sheet liabilities at the stress level that corresponds to the assigned rating.

As of Feb. 28, 2015, the fund's asset coverage ratio for the bank leverage, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), was in excess of 300%. The fund's pro forma asset coverage ratio for total leverage, including the MRPS, as calculated in accordance with the 1940 Act, was in excess of 225%. These are the minimum asset coverage ratios required the fund's governing documents.

MRPS STRUCTURAL PROTECTIONS

Should the MRPS Asset Coverage Test and Fitch OC test decline below their minimum threshold amounts (as tested weekly) the fund is required to deliver notice to the MRPS purchasers within five days of becoming aware of such fact.

The fund manager 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 both the Fitch OC tests and Asset Coverage Test breaches) within a pre-specified time period (a maximum of 47 calendar days and a longer period for the Asset Coverage Test).

THE ADVISOR

KA Fund Advisors, LLC is the fund's investment adviser, responsible for implementing and administering the fund's investment strategy and is a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson) a Securities and Exchange Commission-registered investment adviser. As of Feb. 28, 2015, Kayne Anderson and its affiliates managed assets of over $28 billion, including approximately $24 billion in the energy sector (over $20 billion was invested in MLPs and midstream companies). Kayne Anderson has invested in MLPs and other midstream energy companies since 1998.

RATINGS SENSITIVITIES

The ratings may also 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.

To receive forthcoming complimentary closed-end fund research from Fitch, opt-in at the following link: http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/

Additional information is available at www.fitchratings.com.

The sources of information used to assess this rating were the public domain and KA Fund Advisors.

Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Sept. 4, 2014);

--'MLP Closed-End Funds: A Capital Structure Case Study' (Dec. 2, 2013);

--'2015 Outlook: Closed-End Funds' (Dec. 10, 2014).

Applicable Criteria and Related Research:

Rating Closed-End Fund Debt and Preferred Stockhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528

MLP Closed-End Funds: A Capital Structure Case Studyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723839

2015 Outlook: Closed-End Fundshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=824608

Additional Disclosure

Solicitation Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982784

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Yuriy Layvand, CFA, +1-212-908-9191
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Benjamin Han, +1-212-908-9177
or
Committee Chairperson
Ian Rasmussen, +1-212-908-0232
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
[email protected]
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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