December 19, 2016 / 9:59 PM / 8 months ago

Fitch Affirms Preferred Shares Issued by Two Federated Municipal Funds at 'AAA'

(The following statement was released by the rating agency) NEW YORK, December 19 (Fitch) Fitch Ratings has affirmed the 'AAA' ratings on the following Variable Rate Municipal Term Preferred Shares (VMTP Shares) and auction market preferred shares (AMPS): Federated Premier Municipal Income Fund (NYSE: FMN) --$35,525,000 of VMTP Shares, with a liquidation preference of $25,000 per share, due Dec. 19, 2019, at 'AAA'; --$18,150,000 of AMPS, Series A, with a liquidation preference of $25,000 per share, at 'AAA'. Federated Premier Intermediate Municipal Income Fund (NYSE: FPT) --$46,175,000 of VMTP Shares, with a liquidation preference of $25,000 per share, due Dec. 19, 2019, at 'AAA'; --$14,900,000 of AMPS, Series A, with a liquidation preference of $25,000 per share, at 'AAA'. The affirmations reflect executed amendments to the funds' operating documents extending the maturity on the VMTP Shares from June 2017 to December 2019. The term redemption date of the VMTP shares has been extended from June 19, 2017 to Dec. 19, 2019 as part of amendments to the funds' operating documents. No other material terms of the VMTP Shares changed, including outstanding issue amount, total leverage or any structural covenants impacting asset coverage or key rating driver. As a result, Fitch expects that the maturity extensions will have no rating impact on the VMTPs or AMPS. KEY RATING DRIVERS The 'AAA' long-term ratings primarily reflect: --Sufficient asset coverage provided to the AMPS and VMTP shares as calculated per each fund's overcollateralization (OC) tests; --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 Federated as investment advisor. Fitch's ratings assigned to the ARPS speak only to timely repayment of interest and principal in accordance with the governing documents and not to potential liquidity in the secondary market. FUND LEVERAGE As of Nov. 30, 2016, FMN had about $54 million in leverage, consisting of approximately $35.5 million of Fitch-rated VMTP Shares and $18.2 Fitch-rated AMPS. The total leverage ratio as of Nov. 30, 2016 was approximately 37%. As of Nov. 30, 2016, FPT had about $61 million in leverage, consisting of approximately $46.2 million of Fitch-rated VMTP Shares and approximately $14.9 Fitch-rated AMPS. The total leverage ratio as of Nov. 30, 2016 was approximately 39%. ASSET COVERAGE As of Nov. 30, 2016, each fund's asset coverage ratios for total outstanding preferred shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage of 225% required by each fund's governing documents. As of the same date, each fund's effective leverage ratio was below the 45% (46% if due solely to fluctuations in the market value of a fund's portfolio securities) maximum leverage ratio allowed by each fund's governing documents for the preferred shares. In addition, asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC Tests) per the 'AAA' rating guidelines outlined in Fitch's applicable criteria was in excess of 100%. This is the minimum asset coverage guideline required by the funds' governing documents. STRUCTURAL PROTECTIONS Compliance with the Asset Coverage Test and Effective Leverage Test thresholds are tested periodically for each fund. A breach of either the Asset Coverage or Effective Leverage threshold requires the fund to redeem sufficient Preferred Shares to restore compliance. For the Asset Coverage and Effective Leverage Ratio tests, the total market value exposure periods (i.e. the pre-specified time period allotted for valuation, cure and redemption in the event of a breach) are within the 40 to 60 business day Fitch criteria guidelines. THE FUNDS Federated Premier Municipal Income Fund is a diversified, closed-end management investment company that commenced investment operations in 2002. The fund invests primarily in investment-grade securities that pay interest exempt from federal income tax, including AMT. Substantially all of the fund's assets (at least 90%) are invested in tax-exempt securities. Federated Premier Intermediate Municipal Income Fund is a diversified, closed-end management investment company that commenced investment operations in 2002. The fund invests primarily in intermediate-term, investment-grade securities that pay interest exempt from federal income tax, including AMT. Substantially all of the fund's assets (at least 90%) are invested in tax-exempt securities. From a credit quality perspective, the funds' investment parameters mandate that at the time of purchase, at least 80% of total assets will be invested in securities of investment-grade credit quality, no more than 20% of total assets will be invested in securities rated below investment-grade, and no investments will be made in securities rated below a 'B' rating, or deemed as such by the funds' internal credit ratings. THE ADVISER Federated Investment Management Company serves as the funds' adviser, and is a direct wholly owned subsidiary of Federated Investors, Inc. As of Sept. 30, 2016, Federated Investors, Inc. and affiliates had approximately $364.3 billion in assets under management. STRESS TESTS Fitch performed various stress tests on the funds to assess the strength of the structural protections available to the rated preferred shares compared to the stresses outlined in Fitch's closed-end fund rating criteria. These tests included determining various 'worst case' scenarios where each fund's leverage and portfolio composition migrated to the outer limits of each fund's operating and investment guidelines. Only under certain circumstances, such as increasing each fund's issuer concentration while simultaneously migrating the portfolios to a mix of 80% long-term 'BBB' bonds and 20% high yield bonds, did the asset coverage available to the VMTP Shares fall below the 'AAA' threshold and instead passed at an 'AA' rating level. Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views each fund's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with a 'AAA' rating. RATING SENSITIVITIES The ratings assigned to the preferred shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of each fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch. Each fund has the ability to assume economic leverage through derivative transactions which may not be captured by the funds' Preferred Shares Asset Coverage test or Effective Leverage Ratio. The funds do not currently engage in derivative activities for speculative purposes and do not envision engaging in material amounts of such activity in the future. Material derivative exposure in the future could have potential negative rating implications if it adversely affects asset coverage available to rated preferred shares. Contact: Primary Analyst Greg Fayvilevich Senior Director +1-212-908-9151 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Alexandra Kelly Analyst +1-646-582-4814 Committee Chairperson Davie Rodriguez, CFA Senior Director +1-212-908-0386 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Rating Closed-End Funds and Market Value Structures (pub. 09 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016758 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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