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Wed, November 3, 2010 Fitch Rates MTP Shares Issued by Nuveen Texas Quality Income Municipal Fund 'AAA'
NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has assigned an 'AAA' rating to the following securities issued by Nuveen Texas Quality Income Municipal Fund (NYSE: NTX), a municipal closed-end fund managed by Nuveen Asset Management:
--Up to $76,383,000 of MuniFund Term Preferred Shares, 2.30% Series 2015, with a liquidation preference of $10 per share (MTP Shares), due Dec. 1, 2015.
The closing date for the MTP shares was Nov. 2, 2010. The fund used the net proceeds from the sale of the MTP Shares to fully redeem outstanding Municipal Auction Rate Cumulative Preferred Shares (ARPS) and to slightly increase overall leverage. The size of the increase in overall leverage depends on the extent to which the underwriters exercise their over-allotment option.
As of Oct. 29, 2010 the fund's pro forma leverage was approximately $80.4 million, or 36% of total assets. Pro forma leverage consists of approximately $76.4 million of MTP Shares (assuming full exercise of the over-allotment option) and $4 million of floating-rate certificates of tender option bonds.
The 'AAA' rating is based on asset coverage provided to the MTP Shares by the fund's underlying portfolio of assets consistent with Fitch criteria, structural protections afforded by mandatory deleveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the fund's operations and the capabilities of Nuveen Asset Management as investment advisor.
The MTP Shares are expected to trade on the New York Stock Exchange (NYSE) under the ticker 'NTX Pr C' within 30 days after the date of the prospectus, Oct. 28, 2010. Prior to the commencement of trading on the NYSE, MTP Shares will remain illiquid. Regardless, Fitch's rating on the MTP Shares only speaks to credit risk of the security and not to potential liquidity in the secondary market.
As of Oct 29, 2010, the fund's pro forma asset coverage ratio for total outstanding preferred shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of 225%, which is the minimum asset coverage required by the fund's governing documents (Preferred Asset Coverage Test). As of the same date, the fund's pro forma effective leverage ratio for both preferred shares and floating-rate certificates of tender option bonds was below 50%, which is the maximum leverage ratio required by the fund's governing documents (Effective Leverage Test). Should either of these tests decline below their minimum threshold amounts, the governing documents' mandatory redemption provisions will require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable asset coverage test(s).
Fitch views the fund's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms (as set forth under the Preferred Asset Coverage Test and Effective Leverage Test) as consistent with an 'AAA' rating.
Fitch notes that the fund has the ability to assume economic leverage through derivative transactions which may not be captured by the fund's Preferred Asset Coverage Test or Effective Leverage Test. The fund does not currently engage in derivative activities and does not envision engaging in material amounts of such activity in the future. In fact, such activity is limited by the fund's investment guidelines and could run counter to the fund's investment objective of achieving tax-exempt income. Should material derivative exposure be utilized in the future, this could have potential negative rating implications if it adversely affects asset coverage available to the rated MTP Shares.
Nuveen Texas Quality Income Municipal Fund is a diversified, closed-end management investment company that commenced investment operations on Oct. 17, 1991. The fund's primary investment objective is to provide current income exempt from regular federal income tax consistent with the fund investment policies, and under normal market conditions the fund invests at least 80% of assets in Texas municipal securities providing such tax exempt income. Furthermore, under normal market conditions, the fund invests at least 80% of assets in investment grade quality municipal securities, at the time of purchase, or unrated securities judged to be of comparable quality by Nuveen Asset Management. Not more than 20% of the fund's net assets may be invested in securities rated below 'BBB', and not more than 10% of the fund's net assets may be invested in securities rated below 'B-', at the time of purchase, by Fitch or a comparable rating by other global rating agencies or in unrated securities that are judged to be of comparable quality by Nuveen Asset Management.
Nuveen Asset Management is the fund's investment adviser, responsible for the fund's overall investment strategy and its implementation. Nuveen Asset Management is a wholly owned subsidiary of Nuveen Investments. Founded in 1898, Nuveen Investments and its affiliates had approximately $150.2 billion of assets under management as of June 30, 2010.
The rating may be sensitive to material changes in the credit quality or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch. For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's website at '[ www.fitchratings.com ]'.
Additional information is available at '[ www.fitchratings.com ]'.
The sources of information used to assess this rating were the public domain and Nuveen Asset Management.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria', dated Aug. 17, 2009.
--'Closed-End Funds: Evolving Use of Leverage and Derivatives' dated Sept. 27, 2010;
--'Closed-End Funds: Redemptions Provide Some Liquidity to Illiquid ARPS Market', dated Aug. 31, 2010;
--'Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations', dated March 18, 2010.
Applicable Criteria and Related Research:
Closed-End Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504986 ]
Closed-End Funds: Evolving Use of Leverage and Derivatives
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=559525 ]
Closed-End Funds: Redemptions Provide Some Liquidity to Illiquid ARPS Market
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=552106 ]
Closed-End Fund Debt and Preferred Stock Rating Criteria
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462492 ]
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