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Rating Action:

Moody's downgrades long-term ratings of two Nuveen closed-end funds to Aa2

11 Apr 2016

Ratings assigned to new issues of reorganized funds, post merger

New York, April 11, 2016 -- Moody's Investors Service, ("Moody's") has downgraded to Aa2 the long-term ratings of preferred shares issued by two Nuveen closed-end funds: Nuveen Enhanced AMT-Free Municipal Credit Opportunities Fund (Ticker: NVG) and Nuveen Enhanced Municipal Credit Opportunities Fund (Ticker: NZF).

The downgrade follows changes to the funds' investment policies, which will allow them to invest up to 55% of their assets in municipal securities rated, at the time of investment, Baa or below, including below-investment-grade municipal securities. Previously, the funds' policy was to invest at least 80% of their assets in investment grade municipal securities.

Moody's considered possible portfolio implementations under the new investment policy and concluded that its adoption by the two funds will eventually, with considerable likelihood, place negative pressure on key ratings considerations, especially portfolio credit quality measures.

In addition, Moody's assigned Aa2 long-term ratings to new Variable Rate Demand Preferred (VRDP) shares issued by NVG and NZF.

The new VRDP shares issued by NVG were in connection with the reorganization of each of Nuveen Municipal Opportunity Fund, Inc. (Ticker: NIO) and Nuveen Quality Income Municipal Fund, Inc. (Ticker: NQU) into Nuveen Dividend Advantage Municipal Income Fund, which was renamed Nuveen Enhanced AMT-Free Municipal Credit Opportunities Fund.

The new preferred shares issued by NZF were in connection with the reorganization of each of Nuveen Premium Income Municipal Fund 4, Inc. (Ticker: NPT), Nuveen Dividend Advantage Municipal Fund 2 (Ticker: NXZ), and Nuveen Municipal Advantage Fund, Inc. (Ticker: NMA) into Nuveen Dividend Advantage Municipal Fund 3, which was renamed Nuveen Enhanced Municipal Credit Opportunities Fund.

NVG

Pursuant to the terms of the reorganizations, NVG will issue new Series 2 VRDP shares in exchange for outstanding preferred shares of NQU and new Series 3 VRDP shares in exchange for outstanding preferred shares of NIO. Subsequently, the ratings of the preferred shares (Series 1 VRDP for NQU and Series 1 VRDP for NIO) have been withdrawn.

The Aa2 long-term ratings of the VRDP shares are based on Moody's forward view of NVG's pro-forma credit profile, considering significant changes to the fund's investment mandate that allow it to invest up to 55% of its assets in municipal securities rated, at the time of investment, Baa or below, including below-investment-grade municipal securities. Rating factors considered include adjusted leverage, portfolio profile, and fixed charge coverage, as calculated by Moody's, combined with an assessment of the VRDP shares' relative priority of claim.

Moody's has also assigned short-term ratings to each new VRDP series of NVG based on the short-term rating of the liquidity provider of each series, which provides liquidity support under the terms of the VRDP Purchase Agreement. NVG's newly issued shares retain the same variable dividend rate, right to tender the securities for remarketing in seven days, mandatory term redemption, and liquidation preference as the shares of the two reorganized funds.

The following is a list of the rating actions in connection with NVG:

- Series 1 VRDP Shares, aggregate liquidation preference of $179.0 million -- Downgraded to Aa2

- Series 2 VRDP Shares, aggregate liquidation preference of $385.4 million, Liquidity Provider: JPMorgan Chase Bank, N.A. -- Aa2/P-1 assigned

- Series 3 VRDP Shares, aggregate liquidation preference of $667.2 million, Liquidity Provider: Citibank, N.A. -- Aa2/P-1 assigned

NZF

Pursuant to the terms of the reorganizations, NZF will issue new Series 1 VRDP shares in exchange for outstanding preferred shares of NMA, new Series 2 VRDP shares in exchange for outstanding preferred shares of NPT, and new Series 3 VRDP shares in exchange for outstanding preferred shares of NXZ. Subsequently, the ratings of the preferred shares (Series 1 VRDP for NMA, Series 1 VRDP for NPT, and Series 2 VRDP for NXZ) have been withdrawn.

The Aa2 long-term ratings of the VRDP shares are based on Moody's forward view of NZF's pro-forma credit profile, considering significant changes to the fund's investment mandate that allow it to invest up to 55% of its assets in municipal securities rated, at the time of investment, Baa or below, including below-investment-grade municipal securities. Rating factors considered include adjusted leverage, portfolio profile, and fixed charge coverage, as calculated by Moody's, combined with an assessment of the VRDP shares' relative priority of claim.

Moody's has also assigned short-term ratings to each new VRDP series of NZF based on the short-term rating of the liquidity provider of each series, which provides liquidity support under the terms of the VRDP Purchase Agreement. NZF's newly issued shares retain the same variable dividend rate, right to tender the securities for remarketing in seven days, mandatory term redemption, and liquidation preference as the shares of the three reorganized funds.

The following is a list of the rating actions in connection with NZF:

- Series 2017 iMTP Shares, aggregate liquidation preference of $150.0 million -- Downgraded to Aa2

- Series 2017 VMTP Shares, aggregate liquidation preference of $81.0 million -- Downgraded to Aa2

- Series 1 VRDP Shares, aggregate liquidation preference of $268.8 million, Liquidity Provider: JPMorgan Chase Bank, N.A. -- Aa2/P-1 assigned

- Series 2 VRDP Shares, aggregate liquidation preference of $262.2 million, Liquidity Provider: JPMorgan Chase Bank, N.A. -- Aa2/P-1 assigned

- Series 3 VRDP Shares, aggregate liquidation preference of $196.0 million, Liquidity Provider: The Toronto-Dominion Bank. -- Aa2/P-1 assigned

RATINGS RATIONALE

NVG

The long-term Aa2 ratings assigned to the VRDP shares are based on the following key rating factors derived from a pro-forma NVG portfolio, as of 11 March 2016, with gross assets of approximately $5.2 billion and 36% leverage consisting of VRDP shares, VMTP shares, and tender option bonds (TOBs).

Moody's noted that NVG's new investment mandate differs from the acquired funds' historical mandates, allowing it to invest up to 55% of its assets in municipal securities rated, at the time of investment, Baa or below, including below-investment-grade municipal securities. Moody's considered possible portfolio implementations under the new investment policy and concluded that its adoption will eventually, with considerable likelihood, place negative pressure on key ratings considerations, especially portfolio credit quality measures.

Adjusted Leverage

The fund's pro-forma risk adjusted asset coverage ratio, at 149%, is strong and the risk of an Investment Company of 1940 Act (1940 Act) breach is low at over four 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.

Portfolio Profile

The fund's portfolio profile, which captures the credit quality and liquidity of the fund's holdings, reflect the strong credit quality of municipal holdings that are invested nationally across various general obligations, tax obligations, revenue bonds, pre-refunded bonds as well as other security types. The pro-forma portfolio has a weighted average credit quality of A2.

Fixed Charge Coverage

The long-term ratings of the VRDP Shares, iMTP Shares, and VMTP Shares are further supported by the strong fixed charge coverage ratio at 11.9 times, when calculated on a trailing one year basis. This demonstrates strong capacity on the part of the NVG fund 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 subordinate position of investors holding preferred stock relative to those holding senior unsecured debt obligations.

NZF

The long-term Aa2 ratings assigned to the VRDP, iMTP, and VMTP shares are based on the following key rating factors derived from a pro-forma NZF portfolio, as of 11 March 2016, with gross assets of approximately $3.5 billion and 34% leverage consisting of the VRDP, iMTP, and VMTP shares and tender option bonds (TOBs).

Moody's noted that NZF's new investment mandate differs from the acquired funds' historical mandates, allowing it to invest up to 55% of its assets in municipal securities rated, at the time of investment, Baa or below, including below-investment-grade municipal securities. Moody's considered possible portfolio implementations under the new investment policy and concluded that its adoption will eventually, with considerable likelihood, place negative pressure on key ratings considerations, especially portfolio credit quality measures.

Adjusted Leverage

The fund's pro-forma risk adjusted asset coverage ratio, at 148%, is strong and the risk of an Investment Company of 1940 Act (1940 Act) breach is low at over four 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.

Portfolio Profile

The fund's portfolio profile, which captures the credit quality and liquidity of the fund's holdings, reflect the strong credit quality of municipal holdings that are invested nationally across various general obligations, tax obligations, revenue bonds, pre-refunded bonds as well as other security types. The pro-forma portfolio has a weighted average credit quality of A2.

Fixed Charge Coverage

The long-term ratings of the VRDP Shares, iMTP Shares, and VMTP Shares are further supported by the strong fixed charge coverage ratio at 11.4 times, when calculated on a trailing one year basis. This demonstrates strong capacity on the part of the NZF fund 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 subordinate 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 $225 billion of assets under management as of 31 December 2015.

The methodologies used in these ratings were "Securities Issued by U.S. Closed-End Funds" published in March 2015, and "Variable Rate Instruments Supported by Conditional Liquidity Facilities" published in March 2015. Please see the Ratings Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Neal M. Epstein, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Marc R. Pinto, CFA
MD - Managed Investments
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 downgrades long-term ratings of two Nuveen closed-end funds to Aa2
No Related Data.
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