Market Overview

Fitch Affirms VRDP Shares Issued by 27 Nuveen Closed-End Funds

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings affirms the 'AAA' long-term ratings assigned to variable rate demand preferred shares (VRDP shares) issued by 27 closed-end funds managed by Nuveen Fund Advisors, Inc. (NFA) and subadvised by Nuveen Asset Management, LLC (NAM). Fitch also affirms the 'F1' short-term ratings assigned to the VRDP Shares issued by 18 of the funds and the 'F1+' ratings assigned to the VRDP Shares issued by nine of the funds, reflecting the ratings of the respective liquidity providers to the VRDP Shares. A complete list of the funds and the associated VRDP Shares ratings is included at the end of this rating action commentary.

KEY RATING DRIVERS

The short-term ratings primarily reflect:

--The credit strength of the VRDP Shares' liquidity providers;

--The terms and conditions of the VRDP shares purchase agreements (purchase agreements).

The 'AAA' long-term ratings primarily reflect:

--Sufficient asset coverage provided to the VRDP 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;

--Both the short- and long-term ratings also reflect the capabilities of NFA as investment advisor and NAM as subadvisor.

TENDER AND REMARKETING

The VRDP shares benefit from a feature giving investors the right to tender the securities with a seven-day notice for remarketing. The VRDP shares are also subject to a mandatory tender for remarketing upon the occurrence of certain events, such as non-payment of dividends by the fund, among others. VRDP shares that are unsuccessfully remarketed are purchased by the liquidity provider.

The VRDP shares have a 30-year mandatory redemption date and pay an adjustable dividend rate set weekly by the remarketing agent. Should a remarketing be unsuccessful, the dividend rate will reset to a maximum rate as defined in the governing documents.

PURCHASE OBLIGATION

The VRDP shares are supported by purchase agreements to ensure full and timely repayment of the liquidation preference amount plus any accumulated and unpaid dividends to holders upon occurrence of certain events. The agreements require the applicable liquidity provider to purchase all VRDP shares of the applicable series tendered for sale that were not successfully remarketed. The applicable liquidity provider must also purchase all outstanding VRDP shares of the applicable series if the fund has not obtained an alternate purchase agreement prior to the termination of the purchase agreement being replaced or following the downgrade of the applicable liquidity provider's rating below 'F2' (or equivalent).

The purchase of VRDP shares pursuant to the purchase agreements is unconditional and irrevocable, and as such the short-term ratings assigned to the VRDP shares are directly linked to the short-term creditworthiness of the associated liquidity providers.

The liquidity providers' obligations under the purchase agreements have scheduled termination dates. Fitch expects the purchase agreements to be subsequently extended, with terms that are substantially similar to the current purchase agreements.

ASSET COVERAGE

The funds' asset coverage ratios for the VRDP 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 fee agreements between the funds and the liquidity providers (Minimum VRDP Asset Coverage test).

The funds have also covenanted with the liquidity providers to maintain Effective Leverage Ratios for both VRDP 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 funds' Effective Leverage Ratios 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 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 VRDP 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 VRDP 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

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 $230 billion of assets under management as of Jan. 31, 2012.

RATINGS SENSITIVITY

The ratings assigned to the VRDP 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.

Certain terms of the Minimum VRDP Asset Coverage test and Effective Leverage Ratio are set in the purchase and fee agreements, which are renewed on a periodic basis. Changes to these terms that weaken the tests may have negative rating implications.

The short-term ratings assigned to the VRDP shares may also be sensitive to changes in the financial condition of the liquidity providers. A downgrade of the liquidity providers to 'F2' would result in a downgrade of the short-term ratings of the VRDP shares to 'F2,' absent other mitigants. A downgrade below 'F2', on the other hand, would not necessarily result in a downgrade of the short-term rating of the VRDP shares, given the acceleration features in the transactions that would result in a mandatory tender of the VRDPs for purchase by the liquidity providers.

The funds have the ability to assume economic leverage through derivative transactions which may not be captured by the funds' Minimum VRDP 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 VRDP shares.

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 ratings are as follow:

Nuveen California Dividend Advantage Municipal Fund (NAC):

--$136,200,000 of VRDP Shares, Series 1, due June 1, 2041, affirmed at 'AAA/F1'. The liquidity provider is Morgan Stanley Bank, N.A. ('A/F1').

Nuveen California Investment Quality Municipal Fund, Inc. (NQC):

--$95,600,000 of VRDP Shares, Series 1, due Dec. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen California Municipal Market Opportunity Fund, Inc. (NCO):

--$49,800,000 of VRDP Shares, Series 1, due March 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is Deutsche Bank AG ('A+/F1+').

Nuveen California Performance Plus Municipal Fund, Inc. (NCP):

--$81,000,000 of VRDP Shares, Series 1, due Dec. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen California Quality Income Municipal Fund, Inc. (NUC):

--$158,100,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen California Select Quality Municipal Fund, Inc. (NVC):

--$158,900,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen Dividend Advantage Municipal Fund 2 (NXZ):

--$196,000,000 of VRDP Shares, Series 2, due June 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is Deutsche Bank AG ('A+/F1+').

Nuveen Investment Quality Municipal Fund, Inc. (NQM):

--$211,800,000 of VRDP Shares, Series 1, due May 1, 2041, affirmed at 'AAA/F1'. The liquidity provider is Barclays Bank plc ('A/F1').

Nuveen Municipal Advantage Fund, Inc. (NMA):

--$296,800,000 of VRDP Shares, Series 1, due March 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is JPMorgan Chase Bank, N.A. ('AA-/F1+').

Nuveen Municipal Market Opportunity Fund, Inc. (NMO):

--$350,900,000 of VRDP Shares, Series 1, due March 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is Deutsche Bank AG ('A+/F1+').

Nuveen Municipal Opportunity Fund, Inc. (NIO):

--$667,200,000 of VRDP Shares, Series 1, due Dec. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen New Jersey Investment Quality Municipal Fund, Inc. (NQJ):

--$144,300,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen New Jersey Premium Income Municipal Fund, Inc. (NNJ):

--$88,600,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen New York Dividend Advantage Municipal Income Fund (NKO):

--$50,000,000 of VRDP Shares, Series 2, due June 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is Deutsche Bank AG ('A+/F1+').

Nuveen New York Investment Quality Municipal Fund, Inc. (NQN):

--$112,300,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen New York Performance Plus Municipal Fund, Inc. (NNP):

--$89,000,000 of VRDP Shares, Series 1, due March 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is Deutsche Bank AG ('A+/F1+').

Nuveen New York Quality Income Municipal Fund, Inc. (NUN):

--$161,700,000 of VRDP Shares, Series 1, due Dec. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen New York Select Quality Municipal Fund, Inc. (NVN):

--$164,800,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen Pennsylvania Investment Quality Municipal Fund (NQP):

--$112,500,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen Pennsylvania Premium Income Municipal Fund 2 (NPY):

--$100,000,000 of VRDP Shares, Series 1, due Aug. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen Premier Municipal Income Fund, Inc. (NPF):

--$127,700,000 of VRDP Shares, Series 1, due May 1, 2041, affirmed at 'AAA/F1'. The liquidity provider is Barclays Bank plc ('A/F1').

Nuveen Premier Municipal Opportunity Fund, Inc. (NIF):

--$130,900,000 of VRDP Shares, Series 1, due Dec. 1, 2040, affirmed at 'AAA/F1'. The liquidity provider is Citibank, N.A. ('A/F1').

Nuveen Premium Income Municipal Fund 2, Inc. (NPM):

--$489,500,000 of VRDP Shares, Series 1, due May 1, 2041, affirmed at 'AAA/F1'. The liquidity provider is Barclays Bank plc ('A/F1').

Nuveen Premium Income Municipal Fund 4, Inc. (NPT):

--$262,200,000 of VRDP Shares, Series 1, due March 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is JPMorgan Chase Bank, N.A. ('AA-/F1+').

Nuveen Premium Income Municipal Opportunity Fund (NPX):

--$219,000,000 of VRDP Shares, Series 2, due June 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is Deutsche Bank AG ('A+/F1+').

Nuveen Quality Income Municipal Fund, Inc. (NQU):

--$388,400,000 of VRDP Shares, Series 1, due Dec. 1, 2040, affirmed at 'AAA/F1+'. The liquidity provider is JPMorgan Chase Bank, N.A. ('AA-/F1+').

Nuveen Select Quality Municipal Fund, Inc. (NQS):

--$252,500,000 of VRDP Shares, Series 1, due May 1, 2041, affirmed at 'AAA/F1'. The liquidity provider is Barclays Bank plc ('A/F1').

Additional information is available at 'www.fitchratings.com'.

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:

--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 16, 2011);

--'Global Rating Criteria for Asset-Backed Commercial Paper' (Nov. 10, 2011);

--' Municipal CEFs Refinance Pre-Crisis ARPS ' (May 3, 2012);

--'2012 Outlook: Closed-End Fund Leverage' (Dec. 19, 2011);

--'Closed-End Funds: Derivatives Under Review' (Nov. 16, 2011);

--'Primer: CEF Variable-Rate Demand Preferred Shares' (Oct. 27, 2011).

Applicable Criteria and Related Research:

Primer: CEF Variable-Rate Demand Preferred Shares (Closed-End Fund VRDPs Target Short-Term, Money Market Investors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=654295

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

Global Rating Criteria for Asset-Backed Commercial Paper

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=655450

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648840

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Primary Analyst:
Greg Fayvilevich, +1-212-908-9151
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Russ Thomas, +1-312-368-3189
Director
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Committee Chairperson:
Roger Schneider, +49-(0)69-768076-242
Senior Director
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Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

 

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