Fitch takes the following rating actions on the preferred shares noted below:
Nuveen Connecticut Premium Income Municipal Fund (NTC)
Nuveen North Carolina Premium Income Municipal Fund (NNC)
The two funds will use the proceeds of the VMTP share issuances to fully refinance outstanding MuniFund Term Preferred Shares (MTP shares). Fitch expects the proceeds of the newly issued VMTP shares to be deposited irrevocably in an escrow account with the MTP shares redemption agent pending any required notification period to the MTP shareholders and accordingly the issuance of new VMTP shares will not adversely affect the ratings of the MTP shares while they remain outstanding. For each fund, the amount deposited with the redemption agent will equal the liquidation preference of the MTP shares and any accrued and unpaid dividends. When the notification requirement has passed, the outstanding MTP shares are expected to be redeemed using the escrowed VMTP share proceeds and then marked paid in full by Fitch.
KEY RATING DRIVERS
The 'AAA' long-term ratings primarily reflect:
--Sufficient asset coverage provided to the VMTP shares as calculated per the funds' over-collateralization (OC) tests.
--The 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.
--The capabilities of NFA as investment advisor and NAM as subadvisor.
The funds' asset coverage ratios for the above noted VMTP shares, as calculated in accordance with the Investment Company Act of 1940, were in excess of the minimum asset coverage threshold of 225% currently set by the terms of the VMTP shares.
The funds' governing documents also require the funds to maintain Effective Leverage Ratios (the calculation of which includes both preferred shares and floating-rate certificates of tender option bonds) below 45% (or 46% if the increase in the ratio is due exclusively to asset market value volatility). The Effective Leverage Ratios of both funds are currently below 45%.
In the event of asset coverage declines, the funds' governing documents will require the funds to reduce leverage in order to restore compliance with the asset coverage test breaching the required threshold.
Compliance with the asset coverage and effective leverage ratio requirements are tested daily. Failure to cure an asset coverage breach by the Asset Coverage Cure Date results in an Asset Coverage Mandatory Redemption. Failure to cure an Effective Leverage Ratio breach by the Effective Leverage Ratio Cure Date results in an Effective Leverage Ratio Mandatory Redemption.
In the event of an asset coverage breach, subsequent to the Asset Coverage Cure Date each fund shall deposit sufficient funds with the Redemption and Paying Agent for the redemption of a sufficient number of Preferred Shares to restore asset coverage compliance. The exposure period to market risk for the preferred shares in the event of a mandatory redemption due to an asset coverage breach is 45 days, consistent with Fitch's 60 day criteria guideline.
In the event of an effective leverage ratio breach, subsequent to the Effective Leverage Ratio Cure Date each fund shall (a) deposit sufficient funds with the Redemption and Paying Agent for the redemption of a sufficient number of Preferred Shares to restore effective leverage ratio compliance, (b)engage in transactions involving or relating to the floating rate securities not owned by the Fund and/or the inverse floating rate securities owned by the Fund, including the purchase, sale or retirement of these securities to restore effective leverage ratio compliance, or (c) engage in a combination of these approaches in order to restore effective leverage ratio compliance. The exposure period to market risk for the preferred shares in the event of a mandatory redemption due to an effective leverage ratio breach is 41 days, consistent with Fitch's 60 day criteria guideline.
Fitch performed various stress tests on the funds to assess the strength of the structural protections available to the VMTP shares compared to the stresses outlined in Fitch's closed-end fund rating criteria. These tests included determining various 'worst case' scenarios where the funds' leverage and portfolio composition migrated to the outer limits of the funds' operating and investment guidelines.
Only under remote circumstances, such as increasing the funds' issuer concentration, while simultaneously migrating the portfolios to a mix of 80% long-term 'BBB' bonds and 20% high yield bonds, did the asset coverage available to the VMTP Shares fall below the 'AAA' threshold, and instead passed at a 'AA' rating level.
Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views the funds' permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.
The funds are closed-end management investment companies regulated by the Investment Company Act of 1940. The funds currently invest primarily in investment grade quality municipal bonds.
NFA, a subsidiary of Nuveen Investments, is the funds' investment advisor, responsible for the funds' overall investment strategies and their implementation. NAM is a subsidiary of NFA and oversees the day-to-day operations of the funds. Nuveen Investments and its affiliates had approximately
The ratings assigned to the VMTP shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the funds, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.
The funds have the ability to assume economic leverage through derivative transactions which may not be captured by the funds' Minimum Asset Coverage test or Effective Leverage Ratio. The funds do not currently engage in derivative activities and do not 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 objectives of achieving tax-exempt income. Material derivative exposures in the future could have potential negative rating implications if it adversely affects asset coverage available to rated preferred shares.
For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end fund, 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
Opt-in to receive Fitch's forthcoming research on closed-end funds:
--'Rating Closed-End Fund Debt and Preferred Stock' (
--'Global Rating Criteria for Asset-Backed Commercial Paper' (
--'Municipal Closed-End Funds Diversify Funding and Moderate Rollover Risk' (
--'Municipal CEFs Refinance Pre-Crisis ARPS' (
Rating Closed-End Fund Debt and Preferred Stock
Global Rating Criteria for Asset-Backed Commercial Paper
Municipal Closed-End Funds Diversify Funding and Moderate Rollover Risk
Municipal CEFs Refinance Pre-Crisis ARPS
Tel: +1 212-908-0549
Group Credit Officer
Source: Fitch Ratings
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