Fitch Ratings Affirms 'AA' Rating for PIMCO Municipal Closed-End Funds' RVMTP Shares

Strategic Insights -

Fitch Ratings has reaffirmed the long-term ratings of eight series of Remarketable Variable Rate MuniTerm Preferred Shares (RVMTP shares) issued by three municipal closed-end funds managed by Pacific Investment Management Company LLC. The funds' diversified investment portfolios and robust structural protections have contributed to the ratings affirmation. Notably, the funds' ability to withstand market value declines of up to 15% before breaching Fitch's Over-Collateralization (OC) Test results at the assigned rating level is a key factor in the ratings affirmation.

Key Takeaways:

  • Fitch Ratings has affirmed the long-term ratings of eight series of RVMTP shares issued by Pacific Investment Management Company LLC at 'AA'.
  • The funds' diversified investment portfolios, including up to 20% of managed assets in municipal securities with 'BB' or 'B' or lower ratings, have contributed to the ratings affirmation.
  • The robust structural protections, including mandatory collateral maintenance and deleveraging provisions, have also been a key factor in the ratings affirmation.
  • The funds have demonstrated their ability to withstand market value declines of up to 15% before breaching Fitch's OC Test results at the assigned rating level.
  • PIMCO's asset management capabilities and its adherence to Fitch's criteria guidelines have also contributed to the ratings affirmation.
  • The ratings may be sensitive to material changes in leverage composition, portfolio credit quality, or market risk of the funds' assets.
  • The funds' ability to assume economic leverage through derivative transactions that may not be captured by the minimum asset coverage test or effective leverage ratio could have potential negative rating implications.
  • Fitch performed a stress test on the municipal funds, which indicated that they could withstand a one-notch downgrade relative to the unstressed base case.

Statistics:

  • As of March 31, 2025, the total asset coverage ratio for PIMCO California Municipal Income Fund (PCQ) was 234.17%.
  • As of May 31, 2025, the effective leverage ratio for PCQ was 46.72%, well below the maximum leverage threshold of 47.00%.
  • As of March 31, 2025, the total asset coverage ratio for PIMCO Municipal Income Fund II (PML) was 230.11%.
  • As of May 31, 2025, the effective leverage ratio for PML was 48.21%, below the maximum leverage threshold of 50.00%.
  • As of March 31, 2025, PIMCO had approximately $2.11 trillion of assets under management.

Sources:

  • Fitch Ratings' commentary on the long-term ratings of PIMCO municipal closed-end funds' RVMTP shares.
  • Pacific Investment Management Company LLC's website and public filings.
  • Fitch Ratings' Applicable Criteria for Closed-End Fund Ratings.