NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AAA' ratings assigned to the MuniFund Term Preferred Shares (MTP Shares) issued by the following municipal closed-end funds managed by Nuveen Fund Advisors, Inc. (NFA) and subadvised by Nuveen Asset Management, LLC (NAM):
--Nuveen California Dividend Advantage Municipal Fund 2 (NYSE AMEX: NVX);
--Nuveen Connecticut Dividend Advantage Municipal Fund (NYSE AMEX: NFC);
--Nuveen Connecticut Dividend Advantage Municipal Fund 2 (NYSE AMEX: NGK);
--Nuveen North Carolina Dividend Advantage Municipal Fund (NYSE AMEX: NRB);
--Nuveen North Carolina Dividend Advantage Municipal Fund 2 (NYSE AMEX: NNO);
--Nuveen Massachusetts Dividend Advantage Municipal Fund (NYSE AMEX: NMB).
A complete list of the associated MTP Shares follows at the end of this press release.
KEY RATING DRIVERS
The 'AAA' ratings are based on asset coverage provided to the MTP Shares by the funds' portfolios, structural protections afforded by mandatory deleveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the funds' operations and the capabilities of NFA as investment advisor and NAM as subadvisor.
ASSET COVERAGE
As of Jan. 31, 2012, the funds' pro forma asset coverage ratios for total outstanding preferred shares, as calculated in accordance with the Investment Company Act of 1940, were in excess of the minimum asset coverage of 225% required by the funds' governing documents (Preferred Asset Coverage Test).
Also as of the same date, the funds' pro forma effective leverage ratios were below the maximum leverage ratio of 50% allowed by the funds' governing documents (Effective Leverage Test).
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 overcollateralization (OC) test(s) breaching the required threshold(s).
STRESS TESTS
Fitch performed various stress tests on the funds 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 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 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 an '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
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 exempt from regular federal and state-specific income tax. The MTP Shares are fixed-rate preferred stock.
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 $207 billion of assets under management as of Oct. 31, 2011.
RATING SENSITIVITY
The ratings assigned to the MTP 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.
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'.
The 'AAA' ratings assigned to the following MTP Shares are affirmed:
Nuveen California Dividend Advantage Municipal Fund 2 (NYSE AMEX: NVX)
--$42,846,300 of MTP Shares, series 2014, with a liquidation preference of $10 per share, due April 1, 2014. The MTP Shares trade on the NYSE under the ticker NVX-PRA.
--$55,000,000 of MTP Shares, series 2015, with a liquidation preference of $10 per share, due Nov. 1, 2015.
The MTP Shares trade on the NYSE under the ticker NVX-PRC.
Nuveen Connecticut Dividend Advantage Municipal Fund (NYSE AMEX: NFC)
--$20,470,000 of MTP Shares, series 2015, with a liquidation preference of $10 per share, due April 1, 2015. The MTP Shares trade on the NYSE under the ticker NFC-PRC.
Nuveen Connecticut Dividend Advantage Municipal Fund 2 (NYSE AMEX: NGK)
--$16,950,000 of MTP Shares, series 2015, with a liquidation preference of $10 per share, due April 1, 2015. The MTP Shares trade on the NYSE under the ticker NGK-PRC.
Nuveen North Carolina Dividend Advantage Municipal Fund (NYSE AMEX: NRB)
--$16,600,000 of MTP Shares, series 2015, with a liquidation preference of $10 per share, due April 1, 2015. The MTP Shares trade on the NYSE under the ticker NRB-PRC.
Nuveen North Carolina Dividend Advantage Municipal Fund 2 (NYSE AMEX: NNO)
--$29,700,000 of MTP Shares, series 2015, with a liquidation preference of $10 per share, due April 1, 2015. The MTP Shares trade on the NYSE under the ticker NNO-PRC.
Nuveen Massachusetts Dividend Advantage Municipal Fund (NYSE AMEX: NMB)
--$14,725,000 of MTP Shares, series 2015, with a liquidation preference of $10 per share, due April 1, 2015. The MTP Shares trade on the NYSE under the ticker NMB-PRC.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The sources of information used to assess this rating were the public domain and Nuveen Fund Advisors.
To receive Fitch's forthcoming research on closed-end funds please go to:
http://forms.fitchratings.com/forms/FAMCEFOptinform
Applicable Criteria and Related Research:
--'2012 Outlook: Closed-End Fund Leverage' (Dec. 19, 2011);
--'Closed-End Funds: Derivatives Under Review' (Nov. 16, 2011);
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011).
Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648840
Closed-End Funds: Derivatives Under Review (Increased Use and Limited Transparency Are Key Considerations)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656591
2012 Outlook: Closed-End Fund Leverage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=660709
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