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.
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.
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.
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.
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.
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.
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.
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.