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Rating Action:

Moody's assigns Aa2 ratings to MTP shares to be issued by Nuveen Arizona Premium Income Municipal Fund post merger

Global Credit Research - 05 Apr 2013

Approximately $51.0 million of MTP shares affected

New York, April 05, 2013 -- Moody's Investors Service has assigned ratings of Aa2 to MuniFund Term Preferred Shares (MTP) to be issued by the Nuveen Arizona Premium Income Municipal Fund (NAZ), a NYSE listed closed-end fund. The preferred shares will be issued in connection with the merger of three Arizona closed-end funds into NAZ. Pursuant to the terms of the reorganization, NAZ will issue the new preferred shares in exchange for outstanding preferred shares of the three acquired funds. Immediately prior to the reorganization, the fund changed its domicile from a Minnesota corporation to a Massachusetts business trust.

The fund's newly issued shares, which retain the same fixed per annum dividend rate, mandatory term redemption and liquidation preferences as the outstanding shares of the three acquired funds, are listed below:

2,982,500 MTP Shares 2.05% Series 2015 with a per share liquidation preference of $10 per share and a total liquidation value of about $29.825 million. Term redemption date 11/1/2015 and fixed dividend rate of 2.05%.

2,084,600 MTP Shares 2.90% Series 2016 with a per share liquidation preference of $10 per share and a total liquidation value of $20.846 million. Term redemption date 3/1/2016 and fixed dividend rate of 2.90%.

Moody's also affirmed NAZ's outstanding 280 VMTP Shares, Series 2014 with a per share liquidation preference of $100,000, term redemption date 8/1/2014. These shares will remain outstanding following the completion of the reorganization.

Moody's has also affirmed the Aa2 ratings assigned to the MTP shares currently outstanding in the three funds to be acquired. These include:

Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) 1,110,000 MTP Shares 2.05% Series 2015 with a per share liquidation preference of $10 per share and a total liquidation value of $11.1 million. Term redemption date 11/1/2015 and a fixed dividend rate of 2.05%.

Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) 1,872,500 MTP Shares 2.05% Series 2015 with a per share liquidation preference of $10 per share and a total liquidation value $18.725 million. Term redemption date 11/1/2015 and a fixed dividend rate of 2.05%.

Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) 2,084,600 MTP Shares 2.90% Series 2016 with a per share liquidation preference of $10 per share and a total liquidation value of $20.846 million. Term redemption date 3/1/2016 and a fixed dividend rate of 2.90%.

The ratings assigned to these shares of the acquired funds will be withdrawn immediately following the completion of their termination and exchange into the new MTP shares.

RATINGS RATIONALE

The long-term Aa2 rating actions, affirmed and assigned to the VMTP and MTP shares, are based on the following key rating factors derived from the pro-forma NAZ portfolio, as of January 31, 2013, with gross assets of about $267.8 million and 33% leverage consisting of VMTP shares (about 7%), MTP shares (about 14%) and tender option bonds (TOBs) (about 12%):

Adjusted Leverage

The fund's pro-forma risk adjusted asset coverage ratio, at 175%, is strong and the risk of an Investment Company of 1940 Act (1940 Act) breach is low at 6.7 times, as calculated by Moody's based on the portfolio's historic volatility and leverage. Both results are consistent with a score of Aaa for these metrics.

Portfolio Profile

The fund's portfolio profile, which captures the credit quality and liquidity of the fund's holdings, reflect the strong credit quality of municipal holdings that are invested in Arizona (Aa3, stable) across various general obligation, tax obligation, revenue bonds, pre-refunded bonds as well as other security types. NAZ registers a weighted average credit quality of A1.

This is offset by weaker liquidity metrics generally for municipal funds. In the case of NAZ, and Arizona state-specific fund with its single-state focus concentration which could be exacerbated in any future municipal market downturn, further downward adjustments are taken to reflect these factors.

Fixed Charge Coverage

The long-term ratings of the MTP and VMTP shares are further supported by the strong fixed charge coverage ratio at 5.8 times, when calculated on a trailing one year basis. This demonstrates a strong capacity on the part of NAZ to meet periodic dividend payments from recurring earnings.

Relative Priority of Claim

In addition to assessing the key rating factors described above, Moody's considers the priority of claim of a fund's specific security types and any other qualitative factors relevant to the fund's credit profile. In the case of preferred securities, which is the instrument class associated with these ratings, a one-notch downward adjustment from the senior rating profile suggested by the key factors is made to reflect the weaker position of investors holding preferred stock relative to those holding senior unsecured debt obligations.

Nuveen Fund Advisors, LLC is the investment adviser for the funds, responsible for determining each fund's overall investment strategy. Nuveen Investments and its affiliates had approximately $219 billion of assets under management as of December 31, 2012, of which about 42% was in municipal securities.

The principal methodology used in these ratings was Moody's Methodology for Rating Securities Issued by U.S. Closed-End Funds published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Henry Shilling
Senior Vice President
Managed Investments Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Yaron Ernst
MD - Managed Investments
Managed Investments Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Aa2 ratings to MTP shares to be issued by Nuveen Arizona Premium Income Municipal Fund post merger
No Related Data.

 

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