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Rating Action:

Moody's Rates Aaa Nuveen Dividend Adv MuniFund MTP Shares

09 Mar 2010

New York, March 09, 2010 -- Moody's Investors Service has assigned a first-time rating of Aaa to MuniFund Term Preferred Shares ("MTP") to be issued by Nuveen Dividend Advantage Municipal Fund (NAD-NYSE) a national municipal closed-end fund. Moody's also affirmed its Aaa ratings on the remainder of the MuniPreferred shares outstanding of the fund.

The Aaa rating assigned to the MTP reflects Moody's expectation that the fund will maintain adequate asset coverage at all times. According to the fund's Statement establishing the rights and preferences of the MTP, if asset coverage declines such that preferred share leverage exceeds 44% of fund's managed assets (the inverse of the 225% asset coverage covenant) or if the fund's effective leverage, which is calculated taking into account the impact of its investment in Tender Option Bonds, exceeds 50%, the fund is obligated to sell assets and use the proceeds to reduce leverage until the asset coverage ratio is restored. In Moody's view, these provisions ensure that the fund will have adequate resources to fulfill its obligation to redeem the MTP in full on April 1, 2015. The rating is further supported by Moody's view that the contractual rights associated with the MTP provide MTP investors with meaningful enforcement powers if the fund fails to redeem the shares as required.

The transaction also benefits from Investment Company Act of 1940 incentives which work in tandem with the MTP charter document provisions to constrain leverage.

"Moody's rating of the MTP shares reflects our view that the funds will exhibit strong asset coverage levels and high credit quality going forward because we expect the sponsor to adhere to conservative asset maintenance practices as well as deleveraging procedures," said Moody's Vice President Martin Duffy.

Upon settlement and deposit of net proceeds from the MTP issuance of $133.3 mil. MTP Series 2015, the fund will provide notice to redeem approximately 50% of existing MuniPreferreds Shares. Moody's expects total issue size may increase by $13.33 mil. in connection with a share overallotment option permitting underwriters to increase the total issue size from the initial amounts. The newly issued shares of NAD rank pari passu with existing Aaa-rated preferred share obligations according to fund documents. MTP shares may be optionally redeemed by the funds on or after April 1, 2011. Dividends on the MTP Shares will be cumulative, fixed and payable on a monthly basis and MTP will be listed on the New York Stock Exchange.

Moody's rating anticipates that the fund's total leverage at the time of issuance will increase marginally from 33 to 35% of managed assets. At the time of issuance, asset coverage is expected to be approximately 300% for the fund expressed as the ratio of managed assets to senior securities and Moody's asset coverage computation will be 1.45 x the rating coverage threshold for NAD's MTP shares. Moody's notes that the fund may also use tender option bonds ("TOBs") to amplify its investible assets as a tactical form of leverage.

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 MTP 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 MTP issuance, NAD had MuniPreferred outstanding of $261 mil in three series, M, T and TH. The most recent rating actions affecting leverage issued by the fund was an initial rating assignment of Aaa applicable to preferred shares issued by NAD on October 20, 1999.

New York
Martin J. Duffy
VP - Senior Credit Officer
Global Managed Investments Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

London
Kathryn Kerle
Senior Vice President
Global Managed Investments Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Rates Aaa Nuveen Dividend Adv MuniFund MTP Shares
No Related Data.
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