New York, March 30, 2011 -- Moody's Investors Service has assigned ratings of Aaa to $44.1
million in MuniFund Term Preferred Shares (MTP) Series 2014 to be issued
by two Nuveen state-specific municipal closed-end funds.
The MTP shares, which are subject to term redemptions on May 1,
2014, are being issued by the following funds in the approximate
amounts indicated below, the proceeds of which will be used to redeem
all outstanding auction rate preferred shares (ARPS):
• Nuveen Ohio Dividend Advantage Municipal Fund 2 (NYSE Amex:
NBJ): $25.6 million
• Nuveen Ohio Dividend Advantage Municipal Fund 3 (NYSE Amex:
NVJ): $18.5 million
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 requirements in the event
of coverage ratio breaches," said Moody's Senior Vice President
Henry Shilling.
Nuveen Ohio Dividend Advantage Municipal Fund 2 and Nuveen Ohio Dividend
Advantage Municipal Fund 3, with total net assets of about $70
million and $49 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 both regular federal income taxes and Ohio income
taxes. The two funds will 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, the leverage of each fund is expected to increase by
3%-4%, assuming overallotments, but inside
the range consistent with Moody's Aaa ratings for state-specific
municipal bond funds. On a pro-forma basis leverage is projected
at about 41% for both NBJ and NVJ when exposure to tender option
bonds are included. On the same pro-forma basis, but
excluding tender option bonds, leverage is projected to be approximately
35% for NBJ and 36% for NVJ.
The MTP shares to be issued by the funds, which pay dividends at
a fixed rate, are subject to term redemptions on May 1, 2014.
Further, there are mandatory redemption provisions that are triggered
if the funds fail to maintain an asset coverage ratios of 225%
as defined in the terms of the MTP shares (which is more conservative
than the 200% asset coverage ratio pursuant to the Investment Company
Act of 1940) or an effective leverage ratio of 45% as defined in
the terms of the MTP shares and including preferred shares and tender
option bonds. This is in addition to the Moody's coverage ratio
and guidelines that are also applicable.
To mitigate the risk of a short-fall at maturity, the funds
are also required to segregate securities starting five months prior to
redemption, with a value equal to at least 110% of the redemption
amounts.
On a pro-forma basis, NBJ and NVJ are projected to achieve
Moody's coverage ratios of 130% and 139%, respectively,
based on factors consistent with a rating of Aaa. These are well
in excess of Moody's 100% coverage ratio applicable to these funds.
In addition, the ratings on the outstanding ARPS issued by each
of the funds were affirmed. These consist of 864 shares of series
F ARPS in the amount of $21.6 million for NBJ and 620 shares
of Series W ARPS in the amount of $15.5 million for NVJ.
They will be defeased by the proceeds from the MTP shares and then redeemed
after a required 30-day notice period has elapsed.
With regard to NBJ and NVJ the most recent rating actions affecting obligations
issued by the funds occurred in 2001 and 2002, respectively,
at the time the funds were launched and ratings were issued to the ARPS.
Nuveen Fund Advisors, Inc. is the funds' investment adviser,
responsible for determining the funds' 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.
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 with 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 Funds Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Daniel Serrao
Senior Vice President
Managed Funds 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 Ohio closed-end funds
