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Fitch Affirms Term Pfd Shares of Two Nuveen Municipal Virginia Closed-End Funds at 'AAA'


Published on 2010-11-10 14:20:32 - Market Wire
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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'AAA' ratings assigned to MuniFund Term Preferred Shares (MTP Shares) issued by the following two leveraged U.S. closed-end funds managed by Nuveen Asset Management:

Nuveen Virginia Dividend Advantage Municipal Fund (NYSE Amex: NGB)

-- $22,800,000 of MTP Shares, Series 2014, with a liquidation preference of $10 per share, affirmed at 'AAA';

Nuveen Virginia Dividend Advantage Municipal Fund 2 (NYSE: NNB)

-- $43,200,000 of MTP Shares, Series 2014, with a liquidation preference of $10 per share, affirmed at 'AAA'.

The 'AAA' ratings are based on sufficient asset coverage provided to the MTP Shares by the funds' portfolios, structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the funds' operations and the capabilities of the Nuveen Asset Management as investment manager.

As of Oct. 29, 2010, the funds had the following total assets and leverage:

-- NGB: Total assets of approximately $73.4 million and total leverage of approximately $27.9 million or 38% of total assets. Municipal issuers in Virginia comprised approximately 82% of assets, with the remainder invested in issuers of the U.S. commonwealths and other U.S. states. Total leverage consisted of $22.8 million of MTP Shares and $5.1 million of floating rate securities issued by tender option bond (TOB) trusts.

-- NNB: Total assets of approximately $137.9 million and total leverage of approximately $52.6 million or 38.1% of total assets. Municipal issuers in Virginia comprised approximately 88% of assets, with the remainder invested in issuers of the U.S. commonwealths and other U.S. states. Total leverage consisted of $43.2 million of MTP Shares and $9.4 million of floating rate securities issued by TOB trusts.

As of Oct. 29, 2010, the funds' asset coverage ratios for MTP Shares, as calculated in accordance with the Investment Company Act of 1940, were in excess of 225%, which is the minimum asset coverage required by the funds' governing documents (Preferred Asset Coverage Test). As of the same date, the funds' asset coverage ratios for both MTP Shares and floating-rate certificates of TOBs were in excess of 200%, which is also a minimum asset coverage ratio required by the funds' governing documents (Effective Leverage Test). Should either of the asset coverage tests decline below their minimum threshold amounts, the governing documents' mandatory redemption provisions will require the funds to reduce their leverage in a sufficient amount to restore compliance with the applicable asset coverage test(s).

Fitch views the funds' 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 the 'AAA' ratings.

Fitch notes that both funds have the ability to assume economic leverage through derivative transactions which may not be captured by the funds' Preferred Asset Coverage Test or Effective Leverage Test. Neither fund currently engages in derivative activities nor do they envision engaging in material amounts of such activity in the future. In fact, such activity is limited by the funds' investment guidelines and could run counter to the funds' 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 Virginia Dividend Advantage Municipal Fund and Nuveen Virginia Dividend Advantage Municipal Fund 2 are diversified, closed-end management investment companies that commenced their investment operations on Jan. 26, 2001 and Nov. 15, 2001, respectively. The funds' investment objectives include providing current income exempt from regular federal and Virginia state income tax. Under normal market conditions the funds invest at least 95% of their assets in such securities. Furthermore, under normal market conditions, the funds invest 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 managed 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 of equivalent quality.

Nuveen Asset Management is the funds' investment adviser, responsible for the funds' overall investment strategy and 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 ratings 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 web site 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 Fund Debt and Preferred Stock Rating Criteria
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462492 ]

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 Funds: Fitch Clarifies Criteria for Make-Whole Amounts and Other Prepayment Obligations
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504986 ]

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

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