New York, January 20, 2011 -- Moody's Investors Service has assigned ratings of Aaa to approximately
$156 million in MuniFund Term Preferred Shares Series 2016 (MTP)
to be issued by two Nuveen municipal closed-end funds. The
MTP shares, which are subject to a term redemption in 5 years from
the date of issue, beginning on or about February 1, 2016,
are being issued in the amount indicated by the following funds:
• Nuveen Arizona Dividend Advantage Municipal Fund 3 (NYSE:
NXE Pr C): $21,902,900
• Nuveen Dividend Advantage Municipal Fund (NYSE: NAD Pr D):
$134,575,100
RATINGS RATIONALE
The ratings reflect the funds' strong capacity to meet their dividend
payment obligations, over-collateralization levels of their
preferred shares and adherence to conservative asset coverage maintenance
provisions. In addition to Nuveen's effective portfolio management
practices, it has in place deleveraging procedures in the event
of coverage ratio breaches," said Moody's Senior Vice President
Henry Shilling.
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) and Nuveen Dividend
Advantage Municipal Fund (NAD), with total net assets of about $60
million and $842 million, respectively, invest,
under normal circumstances, at least 80% of their managed
assets in municipal securities and other related investments the income
of which is exempt from regular federal and, in the case of NXE,
also Arizona income taxes. The two funds intend to use the net
proceeds from the sales of MTP shares to refinance and entirely redeem
each fund's outstanding Municipal Auction Rate Cumulative Preferred shares
(MuniPreferred shares).
Once issued, including over-allotments, leverage is
expected to increase by a modest 1%-4% and remain
within the range consistent with Moody's Aaa ratings assigned to leverage
issued by national and state-specific municipal bond funds.
Including exposure to tender option bonds as well as previously issued
MTP shares, in the case of NAD, leverage, calculated
on a pro-forma basis, is projected at about 38% for
NXE and 42% for NAD. On the same pro-forma basis,
but excluding tender option bonds, leverage is projected to be approximately
34% and 41% for NXE and NAD.
The MTP shares issued by the funds are subject to a term redemption in
five years, on or about February 1, 2016. Further,
there are mandatory redemption provisions that are triggered if the funds
fail to maintain and cure asset coverage ratios of 225%,
as defined in each fund's prospectus, or effective leverage ratio,
including preferred shares and tender option bonds, of 50%--a
coverage ratio that is more conservative than the 200% coverage
ratio pursuant to the Investment Company Act of 1940. This is in
addition to the Moody's coverage ratio and guidelines that are also applicable.
On a pro-forma basis, the NXE and NAD funds are projected
to achieve a Moody's coverage ratio of 147% and 142%,
respectively, based on factors consistent with a rating of Aaa.
This is in excess of Moody's 100% coverage ratio applicable to
these funds.
In addition, the ratings on the outstanding MuniPreferred shares
issued by each of the funds were affirmed. These consist of 736
MuniPreferred Series M shares in the amount of $18.4 million
for NXE and 4,803 MuniPreferred Series M, Series T and Series
TH shares, for a combined amount of $120.1 million.
They will be defeased by the proceeds from the MTP shares and then redeemed
after a required 30-day notice period has elapsed.
We are also affirming the Aaa ratings assigned to $144.3
million of 2.70% Munifund Term Preferred Shares Series 2015
previously issued by Nuveen Dividend Advantage Municipal Fund (NAD) as
of March 9, 2010. These were issued to partially refinance
and redeem outstanding MuniPreferred shares.
The most recent rating action affecting obligations issued by the funds
occurred as of March 9, 2010 for NAD at the time of the last MuniPreferred
share issuance and at the time of the original rating assigned to the
MuniPreferred shares of NXE.
Nuveen Fund Advisors, Inc. is the funds' investment adviser,
responsible for determining the funds' overall investment strategy.
Nuveen Asset Management, LLC serves as the funds' sub-adviser
and oversees the day-to-day management of the funds.
Nuveen Investments and its affiliates had approximately $163 billion
of assets under management as of September 30, 2010, of which
approximately $76.5 billion was in municipal securities.
Moody's uses a market value type approach to rate the obligations issued
by closed-end funds. Under this form of analysis,
a fund's assets serve as collateral and provide an asset coverage cushion
that protects investors against a sudden and severe decline in the value
of the portfolio assets for a given exposure period and target rating
level. The asset coverage cushion accounts for the sum of a fund's
liabilities, including the face amount of preferred stock outstanding
or other debt instruments, accumulated and projected interest and
dividend payments and certain fund expenses that must be fully covered
by the discounted value of eligible securities. In addition,
the analysis extends to the fund's intrinsic ability to generate income
to cover dividend payments.
Other inputs in the determination of the rating are: a) quantitative
assessment of total leverage, the fund's capital structure,
amount and nature of the collateral, including credit quality of
investments, diversification guidelines, and exposure period,
and b) our qualitative assessment of the various funds' structural and
organizational considerations, governing documents combined with
requirements to perform in accordance such documents, and monitoring
practices, portfolio management, and other relevant investment
policies.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, confidential and proprietary Moody's Analytics'
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Henry Shilling
Senior Vice President
Managed Investments Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Daniel Serrao
Senior Vice President
Managed Investments Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Assigns Aaa ratings to MuniFund Term Preferred Shares issued by two Nuveen Funds
