Approximately $1.1 billion preferred shares issued to retire auction rate securities
New York, May 04, 2011 -- Moody's assigned Prime-1 short-term and Aaa long-term
ratings to the Nuveen Variable Rate Demand Preferred Shares ("VRDP")
issued by four closed-end municipal bond funds, including:
Nuveen Premium Income Municipal Fund 2, Inc. (NYSE:
NPM) 4,895 Series 1 VRDP Shares, $489.5 million
Nuveen Premier Municipal Income Fund, Inc. (NYSE:
NPF) 1,277 Series 1 VRDP Shares, $127.7 million
Nuveen Investment Quality Municipal Fund, Inc. (NYSE:
NQM) 2,118 Series 1 VRDP Shares, $211.8 million
Nuveen Select Quality Municipal Fund, Inc. (NYSE:
NQS) 2,525 Series 1 VRDP Shares, $252.5 million
The short-term ratings, which address Moody's expectation
of timely repayment of liquidation preference of the VRDP in the event
of an optional or mandatory tender, are based upon the VRDP liquidity
purchase agreement provided by Barclays Bank PLC, the structure
of each transaction and credit- worthiness of the bank providing
the liquidity purchase agreement.
Moody's long-term ratings assigned to the VRDP , which
address the funds' ability to honor optional or mandatory redemptions
as well as their ability to meet dividend obligations, are based
upon the funds' current Moody's strong coverage ratios as
well as the Investment Company Act of 1940 ("1940 Act") coverage
ratios that are all substantially in excess of the preferred share obligations,
adherence to conservative asset coverage maintenance provisions,
deleveraging procedures in the event of a coverage ratio breach as well
as Nuveen's effective portfolio management practices.
Short-Term Ratings Assigned to VRDP Address Credit Quality of Liquidity
Provider and Unconditional Nature of the Liquidity Facility
The Prime-1 ratings reflect Moody's assessment that VRDP
shareholders will be able to tender their shares unconditionally to the
liquidity provider in a timely manner given the terms of the VRDP liquidity
purchase agreement provided by Barclays Bank PLC (currently rated Aa3/
P-1). The liquidity provider agrees to purchase the rated
shares on any business day with a 7-day tender notice for sale.
As such, Moody's short-term ratings associated with
the VRDP are linked to the creditworthiness of the liquidity provider
and may change whenever the short-term rating of the bank is changed.
The liquidity agreement has no automatic termination events or conditions
precedent to funding, making it an unconditional agreement to purchase
unremarketed shares. The Prime-1 rating will expire upon
the termination of the VRDP purchase agreement in May 2012, unless
terminated earlier or extended.
In addition, Moody's cites the inclusion of mandatory tender
events to address "roll over" risk and any unscheduled termination
of the liquidity agreement. The occurrence of these events would
put in motion a notification process whereby VRDP holders are apprised
of a mandatory tender. Included in the mandatory tender events
are the: (i) downgrade of the liquidity provider rating to P-3;
(ii) failure of the fund to pay scheduled dividends; (iii) breach
of an effective leverage covenant continued for 60-days (if declared
a mandatory tender event by the liquidity provider); (iv) a restructuring
event affecting the liquidity provide; (v) failure of the fund to
remit fees to the liquidity provider for services rendered (if declared
a mandatory tender event by the liquidity provider), (vi) changes
to special rate periods, and (vii) substitution of the liquidity
provider. The liquidity provider also has a mandatory purchase
obligation with respect to all outstanding VRDP shares upon termination
of the liquidity agreement.
Once the VRDP shares are tendered to the liquidity provider, either
through an optional or a mandatory tender or mandatory purchase,
the liquidity provider has no automatic termination events or "outs"
which would allow the liquidity provider not to fund. The liquidity
provider and any other holders of VRDP shares benefit from a heightened
dividend rate penalty mechanism that is designed to increase the possibility
that VRDP shares would be remarketed. A penalty rate mechanism
linked to a base rate plus applicable spread systematically increases
over time. The base rate is linked to the long term rating assigned
to the VRDP shares and is subject to a maximum of 15%.
VRDP shareholders will have the option to tender their VRDP shares for
remarketing and purchase on any business day not less than seven days
after delivery of a notice of tender to a tender and paying agent appointed
by the funds, with the consent of the liquidity provider,
at the purchase price. The remarketing agent will use its best
efforts to remarket any VRDP shares so tendered. In the event no
remarketing occurs on or before the relevant purchase date, or VRDP
shares remain unsold pursuant to an attempted remarketing, the tender
and paying agent will deliver all unsold VRDP shares to the liquidity
provider for purchase on such purchase date.
Proceeds from the VRDP Shares issuance will be used to defease and redeem
in full each fund's outstanding Municipal Auction Rate Cumulative
Preferred Shares (MuniPreferred shares). Pending their redemption
following the required notice period, the Aaa ratings assigned to
each fund's MuniPreferred shares are affirmed.
Leverage levels within each of the four funds are expected to remain at
or near current levels. Calculated on a pro-forma basis,
these range between 27% to 33% of managed assets and 40%
to 43%, including exposures to tender option bonds.
Long Term Ratings Assigned to VRDP Aligned with Overcollateralization
of Preferred Shares
NPM, NPF, NQM and NQS, with net assets in the amount
of $979.8 million, $270.9 million,
$496.6 million and $451.9 million, respectively,
each seeks current income exempt from regular Federal income taxes.
Moody's Aaa long-term ratings assigned to the VRDP reflect
each fund's modest leverage, Moody's strong coverage
ratios combined with asset maintenance procedures that require funds to
delever in the event the discounted values of portfolio assets decline
below the preferred shares liquidation preference amounts. This
is in addition to the limitations and asset coverage testing requirements
imposed by the 1940 Act which limit leverage in the form of preferred
stock to an asset coverage ratio of 200%. Further,
the funds maintain asset coverage ratios of 225% and effective
leverage ratios of 45% as defined in the terms of the VRDP shares,
including VRDP shares and tender option bonds.
To mitigate the risk of a short-fall in the event of purchased
VRDP shares redemption, the funds are also required to segregate
securities starting approximately six months prior to redemption,
with a value equal to at least 110% of the redemption amounts.
In addition, the liquidity profile of each portfolio is consistent
with the collateral discount factors that seek to simulate price declines
in the event of a forced liquidation of assets to meet a mandatory redemption.
In this connection, Moody's historical asset coverage levels
for each fund, since their inception, have not declined below
the Moody's basic maintenance amount threshold of 100% for
Aaa rated instruments with exposure periods of seven weeks. The
credit quality of portfolio assets, with 89% or more of portfolio
assets invested in investment grade securities, and strategies to
diversify by issuer and sector, also support the strong asset coverage
At the same time, 1940 Act asset coverage levels in excess of 200%
have consistently been maintained by each of the funds since the issuance
of the preferred stock. Given these levels of overcollateralization
and the types of assets owned by the funds, the Aaa ratings reflect
Moody's view that the funds are expected to pay full liquidation
preference amounts upon redemption either due to a mandatory or voluntary
redemption by each of the funds, including the distribution of fund
assets upon liquidation. Moody's long-term ratings
also address full and timely payment of dividends, subject to rate
periods that could change from time-to-time due to special-rate
period designations and maximum rate spread under certain circumstances.
That said, Moody's long-term ratings may change if
asset coverage levels decline or in the event that future capital structure
changes that restrict a fund's abilities to meet preferred shares
optional or mandatory redemptions.
At the time of their issuance, asset coverage levels for each of
the funds were, as follows:
Moody's (>100%) 1940 Act (>200%)
Nuveen Premium Income Municipal Fund 2, Inc. (NPM) 130%
Nuveen Premier Municipal Income Fund, Inc. (NPF) 133%
Nuveen Investment Quality Municipal Fund, Inc. (NQM) 140%
Nuveen Select Quality Municipal Fund, Inc. (NQS) 134%
Nuveen Fund Advisors, Inc. is the investment adviser for
the funds, responsible for determining each fund's overall investment
strategy. Nuveen Investments and its affiliates had approximately
$197 billion of assets under management as of December 31,
2010, of which over a third was in municipal securities.
The ratings assigned to the VRDP are not recommendations to purchase,
hold or sell those shares or their suitability for a particular investor.
Also, Moody's ratings applicable to the preferred stock addresses
the full-liquidation-preference amount paid upon redemption,
either due to a mandatory or voluntary redemption, including the
distribution of the Fund assets upon liquidation. The ratings also
address the full and timely payment of dividends, subject to rate
periods that could change from time to time due to special-rate
period designations and appropriate notices/conventions.
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
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
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and accurate based on the information that is available to it.
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Managed Investments Group
Moody's Investors Service
Senior Vice President
Managed Investments Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns Aaa/P-1 Ratings to Nuveen Variable Rate Demand Preferred Shares Issued by Four Closed-End Municipal Bond Funds
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