CHICAGO, Nov. 7, 2011 /PRNewswire/ -- DNP Select
Income Fund Inc. (NYSE: DNP) and Duff & Phelps Utility and
Corporate Bond Trust Inc. (NYSE: DUC), two closed-end registered
investment companies (the "funds") advised by Duff & Phelps
Investment Management Co. (the "Adviser"), have provided an update
on their efforts to obtain alternative sources of financial
leverage that would enable them to provide additional liquidity to
holders of preferred shares in light of the persistent failures in
the auction markets.
Because the Adviser and the board of directors of the funds are
committed to serving the best interests of both common and
preferred shareholders, they continue to seek ways to provide
liquidity to preferred shareholders without materially
disadvantaging common shareholders and their ability to benefit
from leverage.
To date the funds have retired a portion of their outstanding
preferred shares with funds borrowed under a credit facility, but
are currently constrained in their ability to refinance all of
their outstanding preferred shares with debt by two factors.
First, the Investment Company Act of 1940 requires each fund to
maintain 300% asset coverage for debt leverage rather than the 200%
required for preferred stock leverage. The Adviser has reviewed the
potential use of reverse repurchase agreement ("reverse repo")
financing that would not be subject to the 300% asset coverage
requirement, based on current guidance from the Securities and
Exchange Commission (the "SEC"). In a recent concept release
on the use of derivatives by investment companies, the SEC has
requested comment on whether it should revise its position so that
reverse repurchase agreements are also subject to the 300% asset
coverage requirement. The Adviser is monitoring the SEC's
future actions on this topic in order to determine whether a
reverse repo structure would offer a long-term solution to the
funds' leverage needs.
Second, the funds are limited in their ability to redeem
additional preferred shares by the need to adhere to guidelines
established by the two principal rating agencies as a condition of
maintaining the AAA rating of the preferred shares. The funds are
required by their charters to comply with each rating agency's
guidelines except when a rating agency has confirmed in writing
that a proposed action would not adversely affect the rating then
assigned to the preferred shares. Among other things, those
guidelines require approval from the rating agencies in order for
the funds to incur indebtedness. When the funds obtained
consent from the rating agencies to enter into their existing
credit facilities, one of the agencies imposed a limitation that no
more than 60% of the funds' leverage could be in the form of debt.
The Adviser has recently met with representatives of both rating
agencies to discuss the funds' desire to use additional borrowings
and/or reverse repo financing to redeem additional preferred
shares. The Adviser has asked the agencies to consent to the
use of such financing for that purpose (and has requested an
increase in the 60% limit on debt leverage from the agency that
imposed that limit). The Adviser is awaiting a response from
the rating agencies in order to determine whether a refinancing of
additional preferred shares with debt and/or reverse repos would be
feasible for the funds.
The outcome and timing of the SEC and rating agencies' reviews
are uncertain. As soon as the funds receive clarity on the
issues they will take action consistent with them, and consistent
with the three principles that have guided the funds' efforts to
provide additional liquidity to preferred shareholders since 2008:
a successful solution should not materially disadvantage common
shareholders and their ability to benefit from leverage, the
solution should be long-term in nature, and a solution should not
encumber the investment process or reduce the pool of available
investment alternatives. Because of all the foregoing
considerations, the exact timing of any preferred share redemptions
is uncertain. The Fund will announce any redemption through press
releases and postings to its website.
DNP Select Income Fund Inc. is a closed-end diversified
investment management company whose primary investment objectives
are current income and long-term growth of income. The fund
seeks to achieve these objectives by investing primarily in a
diversified portfolio of equity and fixed income securities of
companies in the public utilities industries. For more
information, visit www.dnpselectincome.com or call (800)
864-0629.
Duff & Phelps Utility and Corporate Bond Trust Inc. is a
closed-end diversified investment management company whose primary
investment objective is high current income consistent with
investing in securities of investment grade quality with emphasis
on companies in the public utilities industries. For more
information, visit www.ducfund.com or call (800) 338-8214.
Duff & Phelps Investment Management Co. has more than 28
years of experience managing investment portfolios, including
institutional separate accounts and open- and closed-end funds
investing in utilities, infrastructure and real estate investment
trusts (REITs). For more information, visit
www.dpimc.com.
Duff & Phelps is a subsidiary of Virtus Investment Partners
(NASDAQ: VRTS), a multi-boutique asset manager with $33.1 billion under management as of September 30, 2011. Virtus provides investment
management products and services to individuals and institutions
through a multi-manager asset management business, comprising a
number of individual affiliated managers, each with a distinct
investment style, autonomous investment process and individual
brand. Additional information can be found at
www.virtus.com.
SOURCE DNP Select Income Fund Inc.