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Fitch Ratings Affirms 'A' Long-term Ratings of Eaton Vance Senior Floating-Rate Trust and Eaton Vance Limited Duration Income Fund

Strategic Insights

— 2 min read

Eaton Vance Senior Floating-Rate Trust (EFR) and Eaton Vance Limited Duration Income Fund (EVV) have been managed by Eaton Vance Management since commencement. The funds' primary objectives are to provide high current income and capital preservation. EFR invests at least 80% of its assets in senior loans, while EVV invests in U.S. government agency mortgage-backed securities and investments rated below investment grade.

Key Takeaways:

  • Fitch Ratings has affirmed the 'A' long-term ratings assigned to the auction preferred shares (APS) issued by EFR and EVV, citing sufficient asset coverage relative to Fitch's published criteria.
  • Both funds have a sufficient asset coverage ratio, exceeding 100% at the assigned rating level, indicating they can repay all leverage within a 45- to 60-day period.
  • The funds' structural protections, such as mandatory deleveraging provisions, and the capabilities of Eaton Vance Management as the investment advisor, also support the ratings.
  • However, Fitch notes that the ratings are sensitive to material changes in the funds' leverage composition, portfolio credit quality, or market risk, potentially leading to negative rating action.
  • As of March 31, 2025, EFR and EVV had effective leverage levels of 36% and 39%, respectively.
  • Eaton Vance Management has evaluated the funds' compliance with asset coverage requirements, implementing redemption procedures in case of breaches.
  • Both funds invest in foreign currency-denominated securities and utilize forward foreign currency exchange contracts to hedge exchange rate risk.
  • In the event of a breach, the funds have sufficient time (40-60 business days) to redeem preferred shares and restore compliance.
  • Eaton Vance Limited Duration Income Fund utilizes various interest rate derivatives to manage portfolio duration and hedge against fluctuations in securities prices.
  • Fitch believes that the funds will deleverage or adjust their portfolio composition to maintain rated securities' passing Fitch's OC Test margins at the assigned rating level.

Statistics:

  • As of March 31, 2025, the effective leverage levels for EFR and EVV were 36% and 39%, respectively.
  • Fitch's net OC test results for both funds are in excess of 100% at the assigned rating level, indicating sufficient asset coverage.
  • Both funds could withstand a market value decline of 23% (EFR) and 14% (EVV) before breaching Fitch's OC Test results at the assigned rating level.
  • The funds have sufficient liquidity to fully repay all of their leverage within a 45- to 60-day exposure period.

Sources:

  • Closed-End Funds Rating Criteria (pub. 30 Jun 2023)
  • CEF Surveillance Model, v2.0.1 (1)
  • Fitch Ratings (www.fitchratings.com)
  • Eaton Vance Management

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