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 fund is also prohibited from paying out a common stock dividend if it fails to cure a breach to the notes' 300% 1940 Act asset coverage test.
Fitch Assigns New Ratings to Notes & MRPS Issued by Tortoise MLP Fund, Inc
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.
CBA's mortgage covered bonds rated AAA
30, 2017, 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%, which is the minimum level required for the MRP Shares Asset Coverage test requirement described in the MRPS legal documents.
Fitch Rates MRPS Issued by Kayne Anderson Managed Closed-End Fund
Should the MRPS Asset Coverage Test or Fitch OC Test decline below their minimum threshold amounts, the funds' governing documents require them 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.
Fitch Affirms ClearBridge Funds' Notes at 'AAA' & MRPS at 'AA'
Should the MRPS Asset Coverage Test and Fitch OC test decline below their minimum threshold amounts (as tested weekly for Fitch OC Tests and monthly for 1940 Act tests) the funds are required to deliver notice to the MRPS purchasers.
Fitch Affirms 4 Kayne Anderson Managed Funds' MRPS at 'A'/Senior Note Ratings at 'AAA'
The funds are also prohibited from paying out a common stock dividend if it fails to cure a breach to the notes' 300% 1940 Act asset coverage test.
Fitch Affirms Notes & MRPS Issued by Three Tortoise Closed-End Funds
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