Fitch Affirms BlackRock Closed-End Fund VRDP Shares on Reorganization

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'AAA' long-term ratings assigned to $52,000,000 of Series W-7 Variable Rate Demand Preferred Shares (VRDP Shares) issued by BlackRock Municipal Income Investment Trust (NYSE: BBF). The date of final mandatory redemption is May 2041, and the Liquidity Provider is Barclays Bank plc (Barclays, 'A/F1'/ Outlook Stable).

KEY RATING DRIVERS

The 'AAA' long-term ratings of the VRDP Shares primarily reflect:

--Sufficient asset coverage provided to the VRDP Shares as calculated per over-collateralization (OC) tests of BBF;

--The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;

--The legal and regulatory parameters that govern the operations of BBF;

--The capabilities of BlackRock Advisors, LLC as investment advisor.

FUND REORGANIZATION

Today, BlackRock Advisors, LLC announced the closing of a closed-end fund reorganization, whereby BlackRock Municipal Bond Investment Trust (BIE) was reorganized into BBF. As a result of the reorganization, substantially all the assets and liabilities of BIE have become assets and liabilities of BBF. The reorganization has been approved by the requisite shareholders of each fund.

Today, BBF has issued an additional $17.8 million of Series W-7 VRDP Shares, increasing the amount outstanding from $34.2 million to $52 million.

Upon the closing of the reorganization, holders of the VRDP Shares of target fund BIE that were previously rated 'AAA' by Fitch received, for each VRDP Share held immediately prior to the reorganization, one VRDP Share of the additional issuance by BBF having substantially the same terms. Fitch now marks the VRDP Shares of BIE as Paid in Full.

SPECIAL RATE PERIOD

The BBF VRDP Shares are in a Special Rate Period that is currently scheduled to end on April 18, 2018. During this time, Barclays will remain the Liquidity Provider for the VRDP Shares. However, during the Special Rate Period the VRDP Shares will not be subject to optional or mandatory tender events and will not be remarketed by a remarketing agent pursuant to such events.

At the conclusion of the Special Rate Period, the holder of the VRDP Shares and BBF may mutually elect to extend the Special Rate Period. However, if the Special Rate Period is not extended, the VRDP Shares will revert to remarketable securities available for purchase by qualified third party investors. At that point, the VRDP Shares are expected to benefit from an unconditional and irrevocable purchase obligation by a Liquidity Provider upon optional or mandatory tender events, similar to other Fitch-rated VRDP Shares issued by other BlackRock closed-end funds.

If the Special Rate Period is not extended, Fitch would expect to assign a short-term rating to the VRDP Shares based on the ratings of the Liquidity Provider. Currently, Fitch rates Barclays, 'A/F1'/Outlook Stable. However, any designated Liquidity Provider or its rating may be subject to change in the future, which could result in a change to Fitch's short-term rating on the VRDP Shares.

FUND PROFILES

BBF is a closed-end management investment company regulated by the Investment Company Act of 1940 (the Act). Historically, BBF and BIE have invested in municipal securities that are exempt from regular federal income taxes and have invested a significant portion of their total net assets in securities rated at least investment grade. Post reorganization, Fitch does not expect any significant changes to the investment parameters of BBF as the combined fund.

Prior to the reorganization on April 29, 2016, BBF had approximately $167 million in managed assets and BIE had approximately $88 million in managed assets.

FUND LEVERAGE

As of April 29, 2016, BBF had leverage composed of $29.7 million of tender option bonds (TOBs) in addition to the $34.2 million of VRDP Shares, and an Effective Leverage Ratio of about 38%.

As of April 29, 2016, BIE had $16.3 million of TOBs in addition to the $17.8 million of VRDP Shares, and an Effective Leverage Ratio of about 39%. Asset coverage and structural protections for the VRDP Shares are described below.

PREFERRED SHARE ASSET COVERAGE

Based on data reviewed as of April 2016, the asset coverage ratios for BBF and BIE, as calculated in accordance with the 'AAA' Fitch total and net overcollateralization (OC) tests (Fitch OC Tests) outlined in Fitch's criteria, were in excess of 100%, which is the minimum threshold required under the terms of the VRDP Shares.

As of April 29, 2016, the Minimum Asset Coverage ratios for BBF and BIE, as calculated in accordance with the Act, were in excess of 225%, which is the Minimum Asset Coverage threshold required under the terms of the VRDP Shares.

As of April 29, 2016, the Effective Leverage Ratios for BBF and BIE, calculated by including both VRDP Shares and TOBs, were below 45%, which is the maximum leverage threshold allowed under the terms of the VRDP Shares (the threshold is 46% if the increase in the ratio is due solely to fluctuations in the market value of a fund's portfolio securities).

The impact of the TOBs' leverage is captured under the Fitch OC Tests and the Effective Leverage Ratio but not under the Minimum Asset Coverage ratio as calculated in accordance with the Act.

STRUCTURAL PROTECTIONS

In the event of asset coverage declines, the governing documents of BBF's VRDP Shares require the fund to cure any breach by reducing leverage in a sufficient amount within a pre-specified time period. For Fitch OC Tests, BBF can also cure any breach within a pre-specified time period by altering the composition of the portfolio toward assets with lower discount factors.

Compliance with the Fitch OC threshold is tested every five business days for BBF's VRDP Shares. Failure to cure a breach by the allotted cure date requires the redemption of sufficient VRDP Shares to restore the total and net OC ratios to 100%. The time allowed for the fund to restore compliance is consistent with Fitch's 60-business day criteria guideline.

Minimum Asset Coverage compliance is tested monthly for the VRDP Shares of BBF. Failure to cure a breach of the Minimum Asset Coverage requirement by the allotted cure date results in mandatory redemption of sufficient VRDP Shares to restore asset coverage to 225%. Although the time allowed for the fund to restore compliance exceeds Fitch's 60-business day criteria guideline for the VRDP Shares, Fitch does not deem this to be significant due to the presence in the governing documents of Fitch OC Tests, which are aligned with exposure period criteria guidelines.

Compliance with the Effective Leverage Ratio is tested daily for the VRDP Shares. Any breach of the Effective Leverage Ratio is a breach of a Liquidity Provider covenant in the VRDP Shares Fee Agreement. In the event of an Effective Leverage Ratio breach, Fitch expects the fund to redeem a sufficient number of VRDP Shares or reduce the amount of TOBs outstanding in order to restore compliance. Absent such an action by the fund, the Liquidity Provider has the option to institute actions to require the fund to remedy the breach.

STRESS TESTS

Fitch performed various stress tests on BBF's portfolio to assess the strength of the structural protections available to the VRDP Shares compared to the stresses outlined in Fitch's CEF rating criteria. These tests included determining various 'worst case' scenarios where the fund's leverage and portfolio composition migrated to the outer limits of its operating and investment guidelines.

Only under remote circumstances, such as increasing the BBF portfolio issuer concentration while simultaneously migrating the portfolio to a mix of 80% long-term 'BBB' bonds and 20% high yield bonds, did the asset coverage available to the VRDP Shares fall below the 'AAA' long-term rating level, and instead passed at an 'AA' long-term rating level.

Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views BBF's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' long-term rating.

THE ADVISOR

BlackRock Advisors, LLC, a subsidiary of BlackRock, Inc., is the investment advisor to the funds, responsible for the overall investment strategies and their implementation. BlackRock, Inc. and its affiliates had approximately $4.7 trillion of assets under management as of March 31, 2016.

RATING SENSITIVITIES

The ratings assigned to the VRDP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the funds, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.

Certain terms relevant to key VRDP Shares structural protections, including the Minimum Asset Coverage and the Effective Leverage Ratio are set forth in the VRDP Shares Fee Agreement between BBF and the Liquidity Provider, and are renewed on a periodic basis. Any future changes to these terms that weaken the structural protections may have negative rating implications.

BBF has the ability to assume economic leverage through speculative derivative transactions which may not be captured by the fund's Minimum Asset Coverage test or Effective Leverage Ratio. Any such economic leverage would be captured by the Fitch OC Tests.

BBF does not currently engage in speculative derivative activities and Fitch's analysis assumes the fund does not envision engaging in material amounts of such activity in the future. Any material speculative derivative exposures in the future could have potential negative rating implications if it adversely affects asset coverage available to the VRDP Shares.

Additional information is available on www.fitchratings.com.

The sources of information used to assess this rating were the public domain and BlackRock Advisors, LLC.

Applicable Criteria

Rating Closed-End Funds and Market Value Structures (pub. 11 May 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881003

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004539

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004539

Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160516006118/en/

Fitch Ratings
Primary Analyst:
Ralph Aurora, +1-212-908-0528
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Brian Knudsen, +1-646-582-4904
Director
or
Committee Chairperson:
Davie Rodriguez, +1-212-908-0386
Senior Director
or
Media Relations:
Hannah James, +1-646-582-4947
New York
[email protected]

Source: Fitch Ratings

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