KBRA Assigns and Affirms Ratings for Mandatory Redeemable Preferred Shares Issued by Calamos Convertible and High Income Fund

KBRA assigned a ‘AA-’ rating to Calamos Convertible and High Income Fund (CHY) $14.5M Series H Mandatory Redeemable Preferred Shares (MRPS) and affirmed the ratings on existing Series C, E, and G MRPS, with a Stable outlook across all ratings. The action cites a stable portfolio composition, primarily invested in U.S.-domiciled convertible securities, suggesting credit risk is viewed as steady for the preferred issuance.

Analysis

This is primarily a financing/plumbing positive for CHY rather than a fundamental rerating of the portfolio. A higher-quality preferred label can translate into tighter preferred spreads over time, which matters because even a modest reduction in leverage cost drops straight into common-share coverage and supports the fund’s ability to maintain its payout through volatile tape.

The second-order benefit is for the broader leveraged CEF complex: if the market starts treating convertible funds with strong asset coverage as cheaper preferred issuers, that narrows funding differentials versus weaker credit structures. That said, the real driver for CHY remains the market value of the underlying convertibles, which behave like equity-plus-credit hybrids; in a sharp risk-off move, NAV erosion will overwhelm any benefit from this rating and could force a de facto deleveraging even if the preferred itself remains well supported.

Contrarian read: the market may overstate the importance of the rating action because the dollar size is small relative to the fund and does not change duration, credit quality, or equity beta. The more durable signal is that management can still access preferred funding on acceptable terms in a higher-rate regime, which is mildly constructive for the income CEF shelf, but not enough by itself to justify chasing the common absent evidence of discount tightening or improved distribution coverage.

Key Decisions for Investors

• No immediate standalone trade in CHY common on the headline alone; wait for confirmation in discount/premium and distribution coverage over the next 1-2 months before committing capital.
• Watch CHY preferred spreads versus other CEF preferred issuers over 1-3 months; if the AA- rating tightens financing costs across the shelf, that is a relative-long signal for higher-quality leveraged income funds versus lower-rated peers.
• Use a risk-off trigger: if broad equity/convertible beta weakens and CHY NAV falls faster than peers, fade any rating-induced strength and look to short CHY against a basket of less leveraged high-income proxies.
• Set an alert for leverage coverage and short-term rate moves; a rise in funding costs or a coverage breach would negate the benefit of the rating and be the cleaner short signal than the rating event itself.