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Fitch Affirms Pfd Shares of Nuveen Insured Tax-Free Advantage Municipal Fund

^{Published on 2011-01-21 13:15:32 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings affirms the 'AAA' ratings assigned to the following MuniFund Term Preferred Shares (MTP Shares) issued by Nuveen Insured Tax-Free Advantage Municipal Fund (AMEX: NEA), a municipal closed-end fund managed by Nuveen Fund Advisors, Inc. and sub-advised by Nuveen Asset Management, LLC:

--$83,000,000 of MuniFund Term Preferred Shares, series 2015, with a liquidation preference of $10 per share.

As of Dec. 31, 2010 Nuveen Insured Tax-Free Advantage Municipal Fund's leverage was $199.4 million, approximately 40% of managed assets. Leverage consisted of approximately $83 million of Fitch-rated MTP Shares, $67.4 million of auction-rate preferred shares (ARPS) and $49 million of floating-rate certificates of tender option bonds.

The 'AAA' rating is based on sufficient asset coverage provided to the MTP Shares by the fund's portfolio, the 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 Fund Advisors, Inc. as adviser and Nuveen Asset Management, LLC as sub-adviser.

As of Dec. 31, 2010, the fund's 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 lower than 50%, which is the maximum leverage ratio allowed by the fund's governing documents (Effective Leverage Test). Should the Preferred Asset Coverage Test decline below its threshold amount or the Effective Leverage Test increase above its threshold amount, 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 performed various stress tests on the fund to assess the strength of the structural protections available to the MTP Shares compared to the rating stresses outlined in Fitch's closed-end fund rating criteria. These tests included determining various 'worst case' scenarios where the fund's leverage and portfolio composition migrated to the outer limits of the fund's operating and investment guidelines. For example, Fitch modified the fund's leverage amount and composition, in terms of tender option bond leverage versus MTP Shares leverage, and portfolio composition, in terms of credit quality and issuer and industry concentration. Only under remote circumstances, such as increasing tender option bond leverage to half of the fund's overall leverage while simultaneously migrating the portfolio to 80% 'BBB', 10+ years to maturity bonds and 20% high yield bonds, did the asset coverage available to the MTP Shares fall below the 'AAA' threshold, and instead passed at a 'AA' rating level. Given the highly unlikely nature of these stress scenarios, combined with their minimal rating impact, 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 rated MTP Shares.

Nuveen Insured Tax-Free Advantage Municipal Fund is a diversified, closed-end management investment company that commenced investment operations on Nov. 22, 2002. The fund's investment objectives include providing current income exempt from both federal income taxes and federal alternative minimum taxes applicable to individuals. The fund pursues its objective under normal circumstances, by investing at least 80% of its managed assets in such tax-exempt municipal securities. The fund also invests at least 80% of its managed assets in municipal securities benefiting from insurance guaranteeing the timely payment of principal and interest. To be included in this 80% threshold, insurers must have an Insurer Financial Strength rating of at least 'BBB' by Fitch, or of comparable quality by other global rating agencies, at the time of purchase or at the time the municipal security is insured while in the fund's portfolio. The fund may invest up to 20%, at the time of purchase, of its managed assets in municipal securities that are not covered by insurance, provided they are: rated at least 'BBB' by Fitch or of comparable quality by other global rating agencies; unrated but judged to be of comparable quality by Nuveen Asset Management; or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities to ensure timely payment of principal and interest.

Nuveen Fund Advisors, Inc. is the fund's investment adviser, responsible for the implementation of the fund's investment strategy and its implementation. Nuveen Asset Management, LLC oversees the day-to-day operations of the fund. Nuveen Fund Advisors, Inc. is a wholly owned subsidiary of Nuveen Investments. Founded in 1898, Nuveen Investments and its affiliates had approximately $163 billion of assets under management as of Sept. 30, 2010. Nuveen Asset Management, LLC is a wholly owned subsidiary of Nuveen Fund Advisors, Inc.

As described above, the rating may be sensitive to material changes in the leverage composition, credit quality of portfolio assets or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings 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 Fund's, 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: 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 ]

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 ]

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