Fitch Places 3 Nuveen Funds' VRDP Shares' S-T Rtgs on Negative Watch on Liquidity Provider Action

NEW YORK--()--Fitch Ratings has placed the 'F1' short-term ratings of the below Variable Rate Demand Preferred Shares (VRDP Shares) issued by three Nuveen closed-end funds on Rating Watch Negative. The placement on Rating Watch Negative is in connection with the recent rating action placing Deutsche Bank's short-term rating on Rating Watch Negative (Deutsche Bank Trust Company Americas: 'A-/F1', Rating Watch Negative). The short-term ratings of the VRDP shares are directly linked to the short-term rating of Deutsche Bank as the liquidity provider to the VRDP shares, as described in the VRDP Purchase Obligation section below. For more information on the recent rating action taken on Deutsche Bank placing the Short-Term IDR on Rating Watch Negative please see 'Fitch Places Deutsche Bank on Rating Watch Negative', dated Nov. 3, 2016.

The VRDP shares' long-term ratings of 'AAA' are not affected, and no rating actions are being taken with respect to the long-term ratings. The funds are managed by Nuveen Fund Advisors, LLC (NFA) and subadvised by Nuveen Asset Management, LLC (NAM).

Nuveen AMT-Free Quality Municipal Income Fund (NEA)

--$219,000,000 of VRDP Shares, Series 1, final mandatory redemption on June 1, 2040, Short-Term rating of F1 placed on RWN. The liquidity provider is Deutsche Bank Trust Company Americas ('A-/F1', Rating Watch Negative)

Nuveen California AMT-Free Municipal Income Fund (NKX)

--$35,500,000 of VRDP Shares, Series 2, final mandatory redemption on June 1, 2040, Short-Term rating of F1 placed on RWN. The liquidity provider is Deutsche Bank Trust Company Americas ('A-/F1', Rating Watch Negative)

Nuveen New York AMT-Free Municipal Income Fund (NRK)

--$50,000,000 of VRDP Shares, Series 4, final mandatory redemption on June 1, 2040, Short-Term rating of F1 placed on RWN. The liquidity provider is Deutsche Bank Trust Company Americas ('A-/F1', Rating Watch Negative).

KEY RATING DRIVERS

The long-term ratings primarily reflect:

--Sufficient asset coverage provided to the preferred shares as calculated per the over-collateralization (OC) tests of the funds;

--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.

The short-term ratings primarily reflect:

--The credit strength of the liquidity provider for each series of VRDP Shares;

--The terms and conditions of the VRDP Shares purchase agreements.

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

FUND PROFILES

NEA is a closed-end management investment company regulated by the Investment Company Act of 1940 (the Act). The fund's investment mandate allows the fund to invest up to 35% of assets in municipal securities rated 'BBB' or below, including below investment-grade securities or unrated securities of comparable quality. As of Oct. 30, 2016, NEA's total investment exposure (i.e. total assets under management including assets purchased using leverage) was approximately $6.4 billion.

NKX is a closed-end management investment company regulated by the Investment Company Act of 1940 (the Act). The fund invests in municipal securities that are exempt from regular federal income tax, AMT tax and California State income tax. The fund may invest up to 20% of assets in below investment-grade and/or unrated securities judged by NFA to be of comparable quality. As of Oct. 31, 2016, NKX's total investment exposure (i.e. total assets under management including assets purchased using leverage) was approximately $1.2 billion.

NRK is a closed-end management investment company regulated by the Investment Company Act of 1940. The fund invests in municipal securities that are exempt from regular federal, New York State and New York City income taxes. The fund may invest up to 20% of assets in below investment grade and or unrated securities judged by NFA to be of comparable quality. As of Oct. 31, 2016, NRK's total investment exposure (i.e. total assets under management including assets purchased using leverage) was about $2.1 billion.

FUND LEVERAGE

NEA's total leverage on Oct. 31, 2016 consisted of about $2.1 billion of preferred shares and about $344 million of tender option bonds and NEA's effective leverage ratio was approximately 37%.

NKX's total leverage on Oct. 31, 2016 consisted of approximately $433 million of preferred shares and approximately $41 million of tender option bonds and NKX's effective leverage ratio was approximately 38%.

NRK's total leverage on Oct. 31, 2016 consisted of about $743 million of preferred shares and about $47 million of tender option bonds and NRK's effective leverage ratio was approximately 38%.

ASSET COVERAGE

As of Sept. 30, 2016, each fund's asset coverage ratio, as calculated in accordance with the Act, is in excess of the minimum asset coverage threshold of 225% required by the fund's governing documents.

As of Sept. 30, 2016, each fund's effective leverage ratio is below the 45% maximum effective leverage ratio allowed by the governing documents of the preferred shares issued by the fund.

PREFERRED SHARE STRUCTURAL PROTECTIONS

In the event of asset coverage declines, each fund's governing documents require the fund to reduce leverage in order to restore compliance with the applicable asset coverage test.

Minimum Asset Coverage compliance is tested monthly for the VRDP Shares. Compliance with the Effective Leverage Ratio is tested daily for the VRDP shares.

Failure to cure a breach of the Minimum Asset Coverage requirement by the allotted cure date results in mandatory redemption of sufficient preferred shares to restore compliance. To facilitate redemption, the fund will deposit sufficient funds with a third-party tender/redemption and paying agent. The time allowed for the fund to restore compliance is consistent with Fitch's 40 to 60 business day criteria guideline.

The governing documents of the VRDP Shares do not require mandatory deleveraging in the event of a breach of the Effective Leverage Ratio. Rather, the documents state that a breach of the Effective Leverage Ratio is a breach of the fee agreement with the applicable liquidity provider and at the option of the applicable liquidity provider, may result in mandatory tender of VRDP Shares of the applicable series for remarketing (see the VRDP Purchase Obligation section below for details).

VRDP PURCHASE OBLIGATION

The short-term ratings assigned to the VRDP Shares of each series are directly linked to the short-term creditworthiness of the associated liquidity provider. The VRDP Shares are supported by a purchase agreement to ensure full and timely repayment of all tendered VRDP Shares plus any accumulated and unpaid dividends. The purchase agreement is unconditional and irrevocable.

The VRDP purchase agreement requires the liquidity provider to purchase all VRDP Shares of the applicable series tendered for sale that were not successfully remarketed. The 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 liquidity provider's rating below 'F2' (or equivalent).

The liquidity provider's role under the fee agreement relating to the purchase obligation for each series has a scheduled termination date. Prior to the scheduled termination date, the fee agreement can be extended to a new scheduled termination date, or a new liquidity provider may be selected. Any future changes to the terms of the fee agreement that weakens the structural protections discussed above may have negative rating implications.

STRESS TESTS

Fitch performed various stress tests on the funds in order to assess the strength of the structural protections available to the preferred 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 its operating and investment guidelines.

For NKX and NRK, only under remote circumstances, such as increasing leverage to 45% while simultaneously increasing issuer concentration and migrating the portfolio to a mix of 80% long-term 'BBB' 10+ years to maturity bonds and 20% high yield bonds, did the asset coverage available to the rated preferred shares fall below the 'AAA' threshold and instead passed at an 'AA' rating level.

For NEA, asset coverage available to the preferred shares fell below the 'AAA' threshold, and instead passed at the 'AA' rating level only under remote circumstances, such as increasing the fund's leverage to 45% as well as increasing issuer concentration while simultaneously migrating the portfolio to a level of 55% high yield bonds, above the highest allowable under NEA's investment mandate.

Given the highly unlikely nature 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 a 'AAA' rating.

THE ADVISORS

NFA, a subsidiary of Nuveen Investments, is the investment advisor for the funds. NFA is 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 $244.7 billion of assets under management as of Sept. 30, 2016.

RATING SENSITIVITIES

The ratings assigned to the preferred shares may be sensitive to material changes in the leverage level or 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 ratings to be lowered by Fitch.

For the VRDP Shares of each series, certain terms relevant to key VRDP structural protections, including asset coverage and effective leverage are set forth in the fee agreements relating to the purchase agreements and are renewed on a periodic basis. Any future changes to terms that weaken the structural protections may have negative rating implications.

The short-term rating assigned to the VRDP Shares of each series may also be sensitive to changes in the financial condition of the liquidity providers. A downgrade of a liquidity provider to 'F2' would result in a downgrade of the short-term ratings of the applicable 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 applicable VRDP Shares, given the features in the transactions that would result in a mandatory tender of the VRDP Shares for remarketing, or purchase by the liquidity provider in the event of a failed remarketing. Fitch expects to resolve Deutsche Bank's Rating Watch Negative at the latest after the bank's first quarter 2017 (1Q17) earnings are published. Any material change in Deutsche Bank's Short-Term Issuer Default Rating may affect the short-term ratings of the VRDP shares.

The funds have the ability to assume economic leverage through derivative transactions which may not be captured by the minimum asset coverage test or effective leverage ratio. The funds do not currently engage in speculative derivative activity 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 their investment objective of achieving tax-exempt income. Material derivative exposures in the future could have potential negative rating implications if they adversely affect asset coverage available to rated preferred shares.

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.

Opt-in to receive Fitch's forthcoming research on closed-end funds:

http://pages.fitchemail.fitchratings.com/FAMCEFBlankOptin/

Applicable Criteria

Rating Closed-End Funds and Market Value Structures (pub. 09 Sep 2016)

https://www.fitchratings.com/site/re/886753

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014697

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Contacts

Fitch Ratings
Primary Analyst
Ralph Aurora
Senior Director
+1-212-908-0528
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Brian Knudsen
Associate Director
+1-646-582-4904
or
Committee Chairperson
Greg Fayvilevich
Senior Director
+1-212-908-9151
or
Media Relations
Hannah James, + 1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Ralph Aurora
Senior Director
+1-212-908-0528
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Brian Knudsen
Associate Director
+1-646-582-4904
or
Committee Chairperson
Greg Fayvilevich
Senior Director
+1-212-908-9151
or
Media Relations
Hannah James, + 1 646-582-4947
hannah.james@fitchratings.com