New York, December 15, 2010 -- Moody's Investors Service has assigned a rating of Aaa to MuniFund Term
Preferred Shares Series 2016 (MTP) to be issued by the Nuveen Dividend
Advantage Municipal Fund 3 (AMEX: NZF) in the maximum amount of
$265.234 million, depending on market conditions.
The MTP Shares are subject to a term redemption in five years from the
date of original issue, on or about January 1, 2016.
US$265.234 million MuniFund Term Preferred Shares,
Assigned Aaa
RATINGS RATIONALE
The rating reflects the fund's strong capacity to meet its dividend
payment obligations, its preferred shares over-collateralization
levels and 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," said
Moody's Senior Vice President Henry Shilling.
The fund, which under normal circumstances invests at least 80%
of its managed assets in municipal securities and other related investments
the income of which is exempt from regular federal income taxes,
intends to use the net proceeds from the sale of MTP Shares to refinance
and entirely redeem 9,478 of its outstanding Municipal Auction Rate
Cumulative Preferred Shares ("MuniPreferred shares), for a
total of $236.95 million. However, fewer than
9,478 MuniPreferred shares may be redeemed, depending on the
number of MTP Shares sold in the offering. Once issued, including
over-allotments, leverage is expected to increase slightly
from the current level. Including exposure to tender option bonds,
leverage, assuming the maximum MTP Shares offering, calculated
on a pro-forma basis, is projected at about 40%.
On the same pro-forma basis, but excluding tender option
bonds, leverage is projected to be approximately 28%.
The MTP Shares issued by the fund are subject to a term redemption in
five years, on or about January 1, 2016. Further,
there are mandatory redemption provisions that are triggered if the fund
fails to maintain and cure asset coverage ratios of 225%,
as defined in the fund's prospectus, or effective leverage
ratio, including preferred shares and tender option bonds,
of 50%--a coverage ratio that is more conservative
than the 200% coverage ratio pursuant to the Investment Company
Act of 1940. This is in addition to the Moody's coverage
ratio and guidelines that are also applicable.
On a pro-forma basis, the fund is projected to achieve a
Moody's coverage ratio of 137%, based on discount factors
consistent with a rating of Aaa. This is in excess of Moody's
100% coverage ratio applicable to the fund.
In addition, the ratings on the outstanding MuniPreferred shares
issued by the fund were affirmed. A total of 9,478 Series
W, TH and F MuniPreferred shares, for a total of $236.95
million, are expected to be defeased by the proceeds from the MTP
shares and then redeemed after a required notice period has elapsed,
assuming the full issuance of MTP Shares.
The most recent rating action affecting obligations issued by the fund
occurred in 2001 or so upon the original issuance of the fund's
MuniPreferred shares.
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 $163 billion of
assets under management as of September 30, 2010, of which
approximately $76.5 billion 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 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 rating of Aaa to Nuveen National Municipal Fund MuniFund Term Preferred Shares
