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17 Mar 2010
Approximately $550 million in Variable Rate Demand Preferred Shares ("VRDP") issued to retire auction rate securities of two closed end funds
New York, March 17, 2010 -- Moody's assigned Prime-1 short-term and Aaa long-term
ratings to the Nuveen VRDPs issued by two closed-end municipal
bond funds, including:
Nuveen Municipal Advantage Fund (NMA) 2,968 shares,
Nuveen Premium Income Municipal Fund 4 (NPT) 2,622 shares,
The short-term ratings, which address Moody's expectation
of timely repayment of liquidation preference of the VRDP Shares in the
event of an optional or mandatory tender, are based upon the VRDP
Shares liquidity purchase agreement and liquidity provider, JP Morgan
Chase Bank NA (currently rated Aa1/ P-1). Moody's
Prime-1 rating assigned to the VRDP shares reflects a view on the
certainty of timely repayment on demand with seven days notice.
Moody's long-term ratings assigned to the Variable Rate Demand
Preferred Shares reflect an assessment of the underlying fund's
ability to make regular dividend payments and mandatory redemption payments
at final maturity or if necessary to correct an asset coverage breach.
Both Moody's coverage ratios as well as the Investment Company Act of
1940 (1940 Act) coverage ratios are all substantially in excess of the
preferred share obligations. The organization of the funds and
portfolio investment practices represent additional qualitative positives.
Unconditional Nature of the Demand Feature/Purchase Agreement
The Prime-1 ratings reflect Moody's assessment that VRDP Share
holders will be able to tender their shares unconditionally to JP Morgan
Chase Bank NA (currently rated Aa1/ P-1), the liquidity provider.
The liquidity provider agrees to purchase the rated shares, that
are not successfully remarketed, on any business day with a 7-day
tender notice for sale. As such, Moody's short-term
ratings associated with the VRDP Shares are linked to the creditworthiness
of the liquidity provider and may change whenever the short-term
rating of the bank is changed or if the liquidity provider itself changes.
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 with
the termination of the VRDP Shares purchase agreement, currently
scheduled for March 16, 2012.
Moody's notes that the mandatory tender events are automatic to address
"roll over" risk. The occurrence of these events would put in motion
a notification process whereby VRDP Share holders (through the tender
and paying agent) are apprised of a mandatory tender. Included
in the mandatory tender events are the following: monthly missed
dividend, downgrade of theliquidity provider's short term
rating to Prime-3, failure to pay monthly liquidity provider
fee (if declared a mandatory tender event by the Liquidity Provider),
obtainment of an alternate purchase agreement, declaration of a
special rate period, breach of the effective leverage covenant referred
to below continued for 60 days (if declared a mandatory tender event by
the Liquidity Provider) and the occurrence of an extraordinary corporate
event of the liquidity provider. If mandatory tender for remarketing
event eventually results in a failed remarketing, then liquidity
provider is unconditionally obliged to purchase VRDP Shares subject to
Mandatory Tender for purchase by Liquidity Provider.
Once tendered, either through an optional or a mandatory tender,
in the event of an unsuccessful remarketing, the liquidity provider
is obligated to purchase the VRDP Shares. Such obligation is unconditional
and irrevocable. The Liquidity Provider also has a mandatory purchase
obligation with respect to all outstanding VDRP shares upon termination
of the VRDP Shares purchase agreement. In the event the liquidity
provider purchases VRDP Shares, the liquidity provider is entitled
to earn dividends stepped-up to the full maximum rate, calculated
as a spread to a base rate which escalates over time.
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 issuance will be used to retire a all existing
auction rate shares outstanding within each fund, known also as
"MuniPreferreds." Rated leverage levels ie. senior securities
within each of the two funds is expected to remain stable at 32%
of managed assets after the existing preferreds are refinanced.
Each fund also employs additional leverage in the form of tender option
bonds which boost investable assets. Moody's notes that asset
coverage tests and redemption provisions will also constrain "effective"
leverage levels. In parallel, over the life of the liquidity
agreement with JP Morgan, the funds will adhere to an asset coverage
test which mandates that each fund delever when effective leverage exceeds
Long Term Ratings Assigned to VRDP Shares Aligned with Overcollateralization
of Preferred Shares
Moody's Aaa long-term ratings assigned to the VRDP Shares reflect
each fund's modest leverage, Moody's strong coverage ratios combined
with asset maintenance procedures which require funds to
delever in the event the discounted values of portfolio assets decline
below the preferred share par amounts or applicable redemption price plus
accumulated and projected dividend payments and certain fund expenses.
This is in addition to redemption requirements which supplement the Investment
Company Act of 1940. Each fund is required by their charter to
redeem rated preferred shares when these exceed 50% of fund managed
In addition, the liquidity profile of each portfolio is consistent
with the collateral discount factors that seek to simulate pricing stress
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
generally not declined below 1.2 times the Moody's basic maintenance
amount. The credit quality of portfolio assets and investment strategies
to diversify by issuer and sector also support asset coverage levels.
At the same time, 1940 Act asset coverage ratios above 260%
have consistently been maintained by each fund since original issuance
of 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 will pay in full liquidation preference amounts
plus dividends and certain fund expenses upon redemption, either
due to a mandatory or voluntary redemption, including the distribution
of fund assets upon liquidation on March 1, 2040.
That said, Moody's long-term ratings may be downgraded if
asset coverage levels decline or in the event future changes to any of
the funds' capital structures are deemed to restrict a fund's ability
to meet dividends as well as preferred share optional or mandatory redemptions.
At the time of their issuance, asset coverage levels for each of
the funds are as follows:
Moody's (>1.0x) 1940 Act (>2.0 x)
Nuveen Municipal Advantage Fund (NMA) 2,968 shares,
$296.8 million (>1.0x) 1940 Act (>2.0
1.43% and approximately 3.00x
Nuveen Premium Income Municipal Fund 4 (NPT) 2,620 shares,
$262 million(>1.0x) 1940 Act (>2.0 x);
1.43% and approximately 3.00x.
Nuveen Asset Management is the fund's investment adviser, responsible
for determining the fund's overall investment strategy. Nuveen
Investments and its affiliates had approximately $141 billion of
assets under management as of September 30, 2009, of which
approximately $68.8 billion was in municipal securities.
Moody's ratings of preferred shares address the full, liquidation-preference
amount payable upon optional, mandatory, or term redemption,
including the distribution of fund assets upon liquidation. The
rating approach uses asset-specific advance rates over a predetermined
short-time horizon to calculate the market value risk of the fund's
investment portfolio as a whole for structures with triggers that cause
partial or full liquidation of the investment pool.
The credit ratings assigned to preferred stock issued by these funds were
evaluated using factors we believe to be relevant to the credit profile
of each issuer, such as the objectives of the fund, its strategies
for achieving its objectives, and the management characteristics
of its sponsor. These attributes are compared against those of
other funds and these ratings are believed to be comparable to ratings
assigned to preferred stock issued by closed end funds of similar risk.
The assigned ratings are opinions on the expected losses associated with
the security if the fund were to be liquidated in a stress scenario.
The ratings also address the likelihood of timely payment of dividends
as well as principal upon term redemptions. In the rating assigned
to VRDP shares, Moody's would view an extension of the mandatory
term redemption date as a breach of offering terms having negative implications
for the rating.
Prior to VRDP issuance, NMA had MuniPreferred outstanding of $293
mil in 5 series, M, T, W TH and F. The most recent
rating actions affecting leverage issued by the fund was an initial rating
assignment of Aaa applicable to preferred shares issued by NMA in March
1990. Nuveen Premium Income Municipal Fund 4 had outstanding of
$259 million in 4 series M, T, W, TH.
The most recent rating action for these NPT MuniPreferred shares took
place in June 1993 where fund shares were assigned Aaa rating.
VP - Senior Credit Officer
Global Managed Investments Group
Moody's Investors Service
Moody's Assigns Prime-1/Aaa Ratings to Nuveen Closed-End Municipal Bond Fund VRDP Shares
Senior Vice President
Global Managed Investments Group
Moody's Investors Service
No Related Data.
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