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Fitch Takes Rating Actions on Nuveen New York Dividend Advantage Municipal Fund MTP Shares

^{Published on 2010-12-08 09:25:33 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings expects to assign 'AAA' ratings to the MuniFund Term Preferred Shares (MTP Shares) to be issued by Nuveen New York Dividend Advantage Municipal Fund (NYSE: NAN), a municipal closed-end fund managed by Nuveen Asset Management. Fitch has also affirmed the 'AAA' ratings assigned to currently outstanding MTP shares issued by the fund.

Fitch expects to assign 'AAA' ratings to:
--Up to $25,967,000 of MuniFund Term Preferred Shares, Series 2016, with a liquidation preference of $10 per share.

Fitch affirms the 'AAA' ratings assigned to:
--$30,000,000 of MuniFund Term Preferred Shares, 2.70% Series 2015, with a liquidation preference of $10 per share.

Fitch expects to finalize its ratings on the $25,967,000 of Series 2016 MTP Shares on the targeted closing date in December 2010. The main drivers for the expected and affirmed ratings are the asset coverage provided to the MTP Shares by the fund's portfolio that is consistent with Fitch criteria, structural protections afforded by mandatory de-leveraging 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 net proceeds from the issuance of currently outstanding Series 2015 MTP Shares were used, in December 2009, to redeem part of the fund's Municipal Auction Rate Cumulative Preferred Shares (MuniPreferred shares). The net proceeds from the sale of the $25,967,000 of Series 2016 MTP Shares will be used to redeem in full the fund's remaining MuniPreferred shares, and to slightly increase the fund's overall leverage. The increase in overall leverage depends on the extent that the underwriters exercise their over-allotment option. Although the exact Series 2016 MTP Shares issuance size has not yet been determined, Fitch expects asset coverage levels to be consistent with Fitch's 'AAA' rating level criteria. Should the issuance size materially differ from the expectation, this could result in different ultimate rating conclusions than the current expected ratings.

As of Oct. 31, 2010 the fund's pro forma leverage was $78.7 million, or approximately 38% of total assets. Pro forma leverage consists of $26 million of new MTP Shares (assuming full exercise of the over-allotment option), $30 million of currently outstanding MTP Shares and $22.7 million of floating-rate certificates of tender option bonds.

As of Oct. 31, 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 asset coverage ratio for both preferred shares and floating-rate certificates of tender option bonds was in excess of 200%, which is also a minimum asset coverage ratio required by the fund's 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 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 New York Dividend Advantage Municipal Fund is a diversified, closed-end management investment company that commenced investment operations on May 26, 1999. The fund's investment objectives include providing current income exempt from regular federal, New York State and New York City income tax. The fund pursues its objectives, under normal market conditions, by investing at least 80% of assets in such tax-exempt municipal securities. 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 assets may be invested in securities rated below 'BBB', and not more than 10% of the fund's assets may be invested in securities rated below 'B-', by Fitch or of comparable quality, at the time of purchase.

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 $160 billion of assets under management as of Sept. 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.
--'Fitch Launches 'CEF Updates' for Closed-End Funds', dated Nov. 8, 2010;
--'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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