Asset-coverage test

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Asset-coverage test

A bond indenture restriction that permits additional borrowing if the ratio of assets to debt does not fall below a specified minimum.

Asset-Coverage Test

A test determining whether a company is allowed to issue bonds. It is calculated by subtracting a company's current liabilities from its net assets and dividing the quantity by its total debts and/or preferred stock obligations; it may be expressed as dollar amount or as a percentage. Generally, a higher asset-coverage test is desirable, as it indicates the level of debt is low compared to net assets. A significant limitation of the asset-coverage test is the fact that it does not account for liquidity when making the calculation.
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The ratings agency said that the key drivers were the CBA's long term Issuer default rating (IDR) of 'AA-' and the assets percentage used in the asset coverage test of 85.
The Series C and D Preferred Stocks have substantially identical terms and conditions to the Series A and B Preferred Stocks, with the exception of a less restrictive asset coverage test.
In the event of asset coverage declines, the fund's governing documents will require the fund to reduce leverage in order to restore compliance with the asset coverage test breaching the required threshold.
In the event of asset coverage declines, the funds' governing documents will require the funds to reduce leverage in order to restore compliance with the asset coverage test breaching the required threshold.
The fund has the ability to assume economic leverage through derivative transactions which may not be captured by the fund's Preferred Shares Asset Coverage test or Effective Leverage Ratio.
Certain terms of the Minimum VRDP Asset Coverage test and Effective Leverage Ratio are set forth in the fee agreements relating to the purchase agreements, which are renewed on a periodic basis.
Per the fund's operating documents, the sufficiency of asset coverage available to AMPS is measured on the basis of the 1940 Act Asset Coverage Test and the Basic Maintenance Amount Coverage Tests.
As of the same date, the fund's asset coverage ratio for the outstanding bank credit facility, as calculated in accordance with its interpretation of the Investment Company Act of 1940, was in excess of 300%, which is also a minimum asset coverage test required by the fund's governing documents.
Should the asset coverage tests for the senior secured notes decline below their minimum threshold amounts and are not cured in a pre-specified timeframe, the governing documents require the funds to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests.
The rating is based upon the asset coverage tests in place and the experience and track record of the asset manager.
The greater risk-weighting of this portfolio (compared to funds that invest in investment grade municipal bonds) lowers the levels of cushion of the fund's asset coverage tests compared to the stresses outlined in Fitch's criteria at the 'AAA' rating level.
Should the asset coverage tests of the AMPS decline below their minimum threshold amounts (as tested on the last business day of each week) and are not cured within a pre-specified timeframe of six business days, the governing documents require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage tests within a specified timeframe.