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Rating Action:

Moody's assigns Aa1 and Aa2 ratings to new preferred shares issued by two Nuveen closed-end funds

26 Mar 2014

New York, March 26, 2014 -- Moody's Investors Service, Inc. ("Moody's") has assigned Aa1 and Aa2 long-term ratings to the newly-issued Institutional MuniFund Term Preferred (iMTP) shares issued by the Nuveen Dividend Advantage Municipal Fund 3 (Ticker: NZF) and the Nuveen New York AMT-Free Municipal Income Fund (Ticker: NRK) (together, "the Funds"), respectively. Moody's has also assigned a Aa1 long-term rating to the newly-issued Variable Rate MuniFund Term Preferred (VMTP) shares issued by fund NZF.

Moody's also affirmed both the Aa2 long-term and P-1 short-term ratings of fund NRK's four series of outstanding Variable Rate Demand Preferred (VRDP) shares. In addition, the long-term ratings of VMTP Series 2014 and MTP 2.55% Series 2015 of fund NRK, and the VMTP Series 2014 and MTP 2.80% Series 2016 of fund NZF were also affirmed and will be defeased. The defeased shares will be redeemed on the anticipated redemption date of April 11, 2014 by the proceeds from the new iMTP and VMTP share issuances.

The following are the newly assigned ratings in connection with the NZF fund:

- 30,000 Series 2017 iMTP Shares, aggregate liquidation preference of $150 million, term redemption date October 1, 2017 -- Aa1

- 910 VMTP Shares, aggregate liquidation preference of $91 million, term redemption date April 1, 2017 -- Aa1

The following is a list of the rating actions in connection with the NRK fund (excluding the defeased securities):

- 15,800 Series 2017 iMTP Shares, aggregate liquidation preference of $79 million, term redemption date October 1, 2017 -- Aa2 assigned

- 1,123 Series 1 VRDP Shares, aggregate liquidation preference of $112.3 million, mandatory redemption date August 1, 2040, Citibank N.A. -- Aa2/P-1 affirmed

- 1,648 Series 2 VRDP Shares, aggregate liquidation preference of $164.8 million, mandatory redemption date August 1, 2040, Citibank N.A. -- Aa2/P-1 affirmed

- 1,617 Series 3 VRDP Shares, aggregate liquidation preference of $161.7 million, mandatory redemption date December 1, 2040, Citibank N.A. -- Aa2/P-1 affirmed

- 500 Series 4 VRDP Shares, aggregate liquidation preference of $50 million, mandatory redemption date June 1, 2040, Deutsche Bank Trust Company Americas -- Aa2/P-1 affirmed

iMTP shares are similar to VMTP shares in most respects. The shares will typically have a mandatory redemption term of 3-to-5 years, will pay monthly dividends at a spread to SIFMA, have similar asset coverage covenants, and have a six-month liquidity plan in the form of a Term Redemption Liquidity Account. iMTP share denominations will be $5,000 per share versus $100,000 for VMTP, and we expect that iMTP shares will be sold to a group of qualified institutional buyers versus a privately negotiated sale with a single investor in the case of VMTP.

Funds NRK and NZF, with gross assets of about $1.957 billion and $917 million, respectively, as of February 28, 2014, seek current income exempt either from regular federal income tax (NZF) or from federal, New York State, and New York City income taxes and the federal alternative minimum tax applicable to individuals (NRK). The funds are modestly levered with effective leverage (including tender option bonds) of 38% for fund NRK and 36% of fund NZF.

RATINGS RATIONALE

The Aa1 and Aa2 long-term ratings are based on both Funds' adjusted leverage, portfolio profiles and fixed charge coverage, as calculated by Moody's, combined with an assessment of the preferred shares' relative priority of claim. The affirmed P-1 short-term ratings are based upon the VRDP Purchase Agreements signed with P-1 rated entities Citibank N.A. and Deutsche Bank Trust Company Americas.

Adjusted Leverage

Risk adjusted asset coverage for both funds is strong and the risk of an Investment Company of 1940 Act (1940 Act) breach is low at over 3 times, as calculated by Moody's based on the portfolio's historic volatility and leverage. The results are consistent with a score of Aaa for these factors for both funds.

Portfolio Profile

The Funds' portfolio profile, which captures the credit quality and liquidity of both funds' holdings, reflect the strong credit quality of municipal holdings that are invested in more than forty states for fund NZF, or New York (Aa2, positive) for fund NRK, across various general obligations, tax obligations, revenue bonds, pre-refunded bonds as well as other security types. This is offset by weaker liquidity metrics generally for municipal funds. In addition, in the case of NRK, a New York state-specific fund where its single-state concentration presents additional credit risk, further downward adjustments were made to reflect this risk. Both funds have a weighted average credit quality of A1.

Fixed Charge Coverage

The long-term ratings of the preferred shares of both funds are further supported by the strong fixed charge coverage ratio at 7.9 times for fund NRK and 8.1 times for fund NZF, when calculated on a trailing one-year basis. This demonstrates strong capacity of both funds 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 $221 billion of assets under management as of December 31, 2013.

The methodologies used in these ratings were "Moody's Methodology for Rating Securities Issued by U.S. Closed-End Funds" published in May 2013, and "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit backed, Insured and Guaranteed Debts" published in March 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Michael C DeCavalcante
Analyst
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 Aa1 and Aa2 ratings to new preferred shares issued by two Nuveen closed-end funds
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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