Fitch Ratings has affirmed the ratings for the following notes and
preferred stock issued by Neuberger Berman High Yield Strategies Fund
Inc. (NYSE: NHS), a non-diversified, closed-end fund advised by
Neuberger Berman Management LLC (Advisor):
--$90,000,000 Floating Rate Senior Notes, Series A, due September 2023
(notes) at 'AAA';
--$35,000,000 Mandatory Redeemable Preferred Shares - Series B (MRPS),
due September 2023 at 'AA'.
KEY RATING DRIVERS
The rating affirmations reflect:
--Sufficient asset coverage provided to the notes and MRPS as calculated
per Fitch's asset coverage tests and published rating criteria;
--The structural protections afforded by mandatory asset coverage and
de-leveraging provisions in the event of asset coverage declines;
--The legal and regulatory parameters that govern the fund's operations;
--The capabilities of the fund's Advisor.
FUND PROFILE
NHS, through its predecessor fund, commenced its operations on July 28,
2003. The fund's primary investment objective is to seek high total
return and invests primarily in high yield debt securities to pursue
that objective. NHS is a non-diversified closed-end fund, and has a
policy where at least 80% of the fund must be invested in below
investment grade (high yield) debt securities (including corporate
loans) of U.S. and foreign issuers. As of July 31, 2014, the fund
managed $410 million in assets, consisting of 91% in corporate high
yield bonds, 4.6% in bank loans and 2.6% in cash and cash equivalents.
NHS has the ability to enter into interest rate swap contracts for the
purposes of hedging. As of July 31, 2014, NHS had four swaps
outstanding, with various maturity dates, representing $125 million in
notional amount. The interest rate swaps are used to hedge the fund's
floating leverage expense.
FUND LEVERAGE
The notes and MRPS represented 21% and 8%, respectively, of the fund's
total 29% leverage as of the same date. The notes and MRPS are the sole
form of structural leverage of the fund following the Sept. 18, 2013
issuance.
ASSET COVERAGE
At the time of the affirmation, the fund's asset coverage ratio for the
notes, as calculated in accordance with the Investment Company Act of
1940 (1940 Act), exceeded 300%, and the fund's asset coverage ratio for
the MRPS, also as calculated in accordance 1940 Act, exceeded 200%,
which are the minimum asset coverage ratios required by the 1940 Act and
the transactional documents. The fund's asset coverage ratios as
calculated in accordance with Fitch's 'AAA' overcollateralization (OC)
tests described in Fitch's published criteria, exceeded 100%, which is
also the minimum asset coverage required by transactional documents.
The test calculates standardized asset coverage by applying haircuts to
portfolio holdings based on perceived riskiness and diversification of
the assets and measuring its ability to cover both on and off-balance
sheet liabilities, if any, at the assigned 'AAA' stress level.
STRUCTURAL PROTECTIONS
Should the asset coverage tests decline below their minimum threshold
amounts, under the terms of both the notes and MRPS, the fund is
required to cure any breaches 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 all test
breaches) within a pre-specified time period.
Failure to cure an asset coverage breach, as described above, is an
event of default under the terms of the notes. The fund must then
deliver a notice within five business days to the note purchasers and a
majority vote of note purchasers may then declare all the notes then
outstanding to be immediately due and payable.
THE FUND'S ADVISER
Neuberger Berman Management LLC is an indirect subsidiary of Neuberger
Berman Group LLC, which is a private, independent, employee-controlled
investment manager founded in 1939. The firm employed more than 2000
employees and managed $257 billion in assets across equities, fixed
income, hedge funds and private equity as of June 30, 2014.
RATINGS SENSITIVITIES
The ratings assigned to the notes and preferred shares may be sensitive
to material changes in the leverage composition, portfolio credit
quality or market risk of the fund, as described above. A material
adverse deviation from Fitch guidelines for any key rating driver could
cause the ratings to be lowered by Fitch.
For additional information about Fitch rating guidelines applicable to
debt and preferred stock issued by closed-end funds, please review the
criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.
The sources of information used to assess this rating were the public
domain and Neuberger Berman.
Opt-in to receive Fitch's forthcoming research on closed-end funds:
http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 14, 2013).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=872414
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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