The fund is a municipal closed end fund managed by
KEY RATING DRIVERS
The 'AAA' long-term ratings of the VMTP Shares of NMT primarily reflect:
--Sufficient asset coverage provided to the preferred shares as calculated per the fund's 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 fund's operations;
--Both the short- and long-term ratings also reflect the capabilities of NFA as investment advisor and NAM as subadvisor.
The fund will use the proceeds of the VMTP Share issuances to fully refinance all of its 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 the required 10-day 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. The amount deposited with the fund's redemption agent will equal at least 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.
As of the same date, the fund's Effective Leverage Ratio was below the 45% maximum Effective Leverage tests allowed by the fund's governing documents for the VMTP Shares.
Compliance with the Asset Coverage and Effective Leverage thresholds is tested periodically. A breach of the Asset Coverage threshold requires the fund to redeem sufficient VMTP Shares to restore compliance. A breach of the Effective Leverage threshold requires the fund to redeem a sufficient number of VMTP Shares or reduce the amount of tender option bonds (TOBs) in order to restore compliance.
For the Asset Coverage and Effective Leverage Ratio tests, the total market value exposure periods (i.e. the pre-specified time period allotted for valuation, cure and redemption in the event of a breach) are within the 60 business day Fitch criteria guidelines.
Fitch performed various stress tests on the fund 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 fund's leverage and portfolio composition migrated to the outer limits of the fund's operating and investment guidelines.
Only under remote circumstances, such as increasing the fund's issuer concentration, while simultaneously migrating the portfolio to a mix of 80% long-term 'BBB' bonds and 20% high yield bonds, did the asset coverage available to the preferred shares fall below the 'AAA' long-term rating level, and instead passed at an 'AA' long-term rating level.
Given the relative conservatism of the stress scenarios, and the minimal rating impact, Fitch views the fund's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' long-term rating.
The fund is a closed-end management investment company regulated by the Investment Company Act of 1940. The investment advisor is NFA, a subsidiary of Nuveen Investments. NFA is responsible for the fund's overall investment strategies and their implementation. The sub-advisor, NAM, is a subsidiary of NFA that oversees the day-to-day operations of the fund. Nuveen Investments and its affiliates had nearly
The rating assigned to the VMTP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch.
The fund has the ability to assume economic leverage through derivative transactions which may not be captured by the fund's Minimum Asset Coverage test or Effective Leverage Ratio. 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 objectives of achieving tax-exempt income. Material derivative exposure 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 a 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
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Rating Closed-End Fund Debt and Preferred Stock
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Global Rating Criteria for Asset-Backed Commercial Paper
Source: Fitch Ratings
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