OREANDA-NEWS. Fitch Ratings has affirmed the 'AAA' ratings assigned to the senior unsecured notes (Notes) and 'AA' ratings assigned to the mandatory redeemable preferred shares (MRPS) issued by Kayne Anderson Midstream/Energy Fund, Inc. (NYSE: KMF) managed by KA Fund Advisors, LLC.

Kayne Anderson Midstream/Energy Fund (KMF)
--\$55,000,000 series A 3.93% Notes due on March 3, 2016;
--\$60,000,000 series B 4.62% Notes due on March 3, 2018;
--\$50,000,000 series C 4.00% Notes due on March 22, 2022;
--\$40,000,000 series D 3.34% Notes due on May 1, 2023;
--\$30,000,000 series E 3.46% Notes due on July 30, 2021.

--\$35,000,000 series A 5.32% MRPS due on March 3, 2018;
--\$30,000,000 series B 4.50% MRPS due on March 22, 2020;
--\$40,000,000 series C 4.06% MRPS due on July 30, 2021.

KEY RATING DRIVERS

The rating assignment reflects:

--Sufficient pro forma asset coverage provided to Notes and MRPS as calculated per the fund's asset coverage tests;
--The structural protections afforded by mandatory collateral maintenance 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 KA Fund Advisors, LLC as investment advisor.

FUND PROFILES

KMF is a non-diversified, closed-end fund, which commenced its operations on Nov. 24, 2010. The fund's investment objective is to provide a high level of total return with an emphasis on making quarterly cash distributions to its common stockholders. The fund seeks to achieve that investment objective by investing at least 80% of its total assets in the securities of companies in the Midstream/Energy Sector, consisting of midstream MLPs, midstream companies, other MLPs and other energy companies.

LEVERAGE

As of March 31, 2015, the fund's total assets was approximately \$1.1 Billion supporting total leverage of 352 million which include \$12 million of bank borrowing, \$235 million of Fitch-rated Notes (Pari-passu to the bank borrowing) and \$105 million of Fitch-rated MRPS. Total leverage ratio is approximately 31%.

ASSET COVERAGE

As of March 31, 2015, the fund's pro forma asset coverage ratios, as calculated in accordance with the Fitch total and net overcollateralization tests (Fitch OC tests) per the 'AA' rating guidelines for the MRPS, outlined in Fitch's closed-end fund criteria, were in excess of 100%. These are the minimum asset coverage guideline required by the fund's governing documents.
The Fitch OC tests calculate standardized asset coverage by applying haircuts to portfolio holdings based on riskiness and diversification of the assets and measuring their ability to cover both on- and off-balance-sheet liabilities at the stress level that corresponds to the assigned rating.

As of the same date, the fund's asset coverage ratio for the bank leverage, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), was in excess of 300%. 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%. These are the minimum asset coverage ratios required the fund's governing documents.

NOTES STRUCTURAL PROTECTIONS

Should the asset coverage tests decline below their minimum threshold amounts (as tested on the last business day of each week), under the terms of the notes the fund is required to deliver notice to the note purchasers within five business days. The fund manager is then expected 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 the 1940 Act test breaches) within a pre-specified time period (a maximum of 47 calendar days for the Fitch OC Tests and a longer period for the 1940 Act test).

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 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. Fitch views this as an added incentive to cure and deleverage in a timely manner, regardless of acceleration by the notes purchasers.

PARI PASSU CLAIM WITH CREDIT FACILITY

Upon the occurrence of an Event of Default per the Note Purchase Agreement(such as a failure to cure an asset coverage breach) or per the fund's Credit Agreement, the noteholders and the bank lender will share in their claim on fund assets pari passu when receiving payments as described in each of those agreements. The fund accounts for this pari passu status in their calculation of the Fitch OC Tests.

MRPS STRUCTURAL PROTECTIONS

Should the MRPS Asset Coverage Test and Fitch OC test decline below their minimum threshold amounts (as tested weekly) the fund is required to deliver notice to the MRPS purchasers within five days of becoming aware of such fact.

The fund manager is required 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 (a maximum of 47 calendar days and a longer period for the Asset Coverage Test).

THE ADVISOR

KA Fund Advisors, LLC is the fund's investment adviser, responsible for implementing and administering the fund's investment strategy and is a subsidiary of Kayne Anderson Capital Advisors, L.P. (Kayne Anderson) a Securities and Exchange Commission-registered investment adviser. As of March 31, 2015, Kayne Anderson and its affiliates managed assets of over \$28 billion including approximately \$23 billion in the energy sector (over \$19 billion was invested in MLPs and midstream companies). Kayne Anderson has invested in MLPs and other midstream energy companies since 1998.

RATINGS SENSITIVITIES

The ratings may also be sensitive to material changes in the credit quality or market risk profile of the fund. 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 closed-end fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.