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Fitch Affirms Pfd Shares of Nuveen Virginia Premium Income Municipal Fund

^{Published on 2011-02-01 20:20:21 - 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 Virginia Premium Income Municipal Fund (NYSE: NPV), a municipal closed-end fund managed by Nuveen Fund Advisors, Inc. and sub-advised by Nuveen Asset Management, LLC:

--$32,205,000 of MuniFund Term Preferred Shares, series 2015, with a liquidation preference of $10 per share.

As of Dec. 31, 2010 Nuveen Virginia Premium Income Municipal Fund's leverage was approximately $72.6 million, or 38% of managed assets. Leverage consisted of approximately $32.2 million of Fitch-rated MTP Shares, $25.6 million of auction-rate preferred shares (ARPS) and $14.8 million of floating-rate certificates of tender option bonds.

The 'AAA' rating is based on the 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.

The MTP Shares trade on the New York Stock Exchange (NYSE) under the ticker 'NPV-C'. Fitch's rating on the MTP Shares only speaks to timely repayment of interest and principal in accordance with the governing documents and not to potential liquidity in the secondary market.

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 319%, which is in excess of the minimum asset coverage of 225% 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 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 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 Virginia Premium Income Municipal Fund is a diversified, closed-end management investment company that commenced investment operations on March 18, 1993. The fund's investment objectives include providing current income exempt from regular federal and Virginia income tax. The fund pursues these objectives, under normal circumstances, by investing at least 80% of managed assets in such tax-exempt municipal securities. Furthermore, under normal circumstances, the fund invests at least 80% of managed 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, LLC. 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 Fund Advisors, Inc., the fund's investment adviser, is responsible for determining the fund's overall investment strategies and their 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, Inc. Founded in 1898, Nuveen Investments, Inc. 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.

Fitch notes that as of the date of this press release, the commonwealth of Virginia was rated 'AAA' with a Stable Outlook by Fitch. Nevertheless, Fitch continues to regularly assess the appropriateness of its rating criteria in light of market developments. In particular, Fitch perceives there to be higher risk, on average, for single state CEFs relative to nationally diversified CEFs, particularly with respect to those single state funds invested in states facing budgetary crises. Fitch's rating criteria call for higher asset coverage (lower leverage) for single-state CEFs.

As described above, the rating assigned to MTP Shares may be sensitive to material changes in the leverage composition, credit quality of managed 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 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 ]

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