KBRA Affirms Rating for KKR Income Opportunities Fund Mandatory Redeemable Preferred Shares
13 Dec 2023 | New York
KBRA affirms the rating of ‘A’ for KKR Income Opportunities Fund’s (“KIO” or the “Fund”) outstanding Mandatory Redeemable Preferred Shares and maintains a Stable Outlook.
The Fund is registered under the Investment Company Act of 1940 (the “40 Act”) and is a closed-end investment fund sponsored by KKR Credit Advisors (US) LLC. The Fund had its Initial Public Offering in July 2013 and its shares are listed on the New York Stock Exchange under the symbol “KIO”. The Fund’s investment strategy focuses on first and second lien secured loans, unsecured loans, and high yield debt instruments of varying maturities.
Key Credit Considerations
The rating is driven primarily by KIO’s asset coverage, liquidity, and management experience. Furthermore, KIO has demonstrated its willingness and ability to remain in compliance with ’40 Act leverage thresholds which was notable through challenging market conditions post the COVID-19 pandemic. The Fund maintained compliance with ’40 Act guidelines which insulated creditors and preferred shareholders. In KBRA’s view, KIO’s ability to withstand such a significant market dislocation demonstrates the strength of the Fund Advisor and the resiliency of its capital structure. Since the MRPS issuance in October 2019, total asset coverage has ranged from 243% to 315% with an average of 277%, driven by stable credit performance of the underlying assets and active management of Fund leverage.
A deterioration in asset coverage levels below ’40 Act requirements and the Fund manager’s inability to liquidate assets and demonstrate intention to cure within the 30-day time-period could result in a negative rating change. Conversely, a trend of stable asset performance coupled with improvements to asset coverage could result in a positive rating change.
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