NEW YORK--(BUSINESS WIRE)--Fitch Ratings is withdrawing the short-term ratings on Variable Rate Demand Preferred Shares (VRDP Shares) listed below as they are no longer considered by Fitch to be relevant to the agency's coverage because the shares are no longer subject to tender events. 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.
Nuveen Pennsylvania Investment Quality Municipal Fund (NQP)
--$112,500,000 of VRDP Shares, Series 2, final mandatory redemption on Dec. 1, 2042, Short-Term Rating of 'F1+' withdrawn.
--$105,000,000 of VRDP Shares, Series 3, final mandatory redemption on Dec. 1, 2042, Short-Term Rating of 'F1+' withdrawn.
Nuveen Ohio Quality Income Municipal Fund (NUO)
--$148,000,000 of VRDP Shares, Series 1, final mandatory redemption on Sept. 1, 2043, Short-Term Rating of 'F1+' withdrawn.
Nuveen New Jersey Dividend Advantage Municipal Fund (NXJ)
--$144,300,000 of VRDP Shares, Series 2, final mandatory redemption on April 1, 2043, Short-Term Rating of 'F1+' withdrawn.
--$88,600,000 of VRDP Shares, Series 3, final mandatory redemption on April 1, 2043, Short-Term Rating of 'F1+' withdrawn.
The short-term ratings of the VRDP Shares were directly linked to the short-term rating of Royal Bank of Canada (RBC; 'AA/F1+') as the liquidity provider to the VRDP Shares, as described in the VRDP Purchase Obligation section below. As of Nov. 17, the VRDP Shares' have entered into a Special Rate Period (SRP) during which they will not be supported by a liquidity provider.
The funds are managed by Nuveen Fund Advisors, LLC (NFA) and subadvised by Nuveen Asset Management, LLC (NAM).
SPECIAL RATE PERIOD
The VRDP Shares have entered into a one year SRP. The SRP is scheduled to conclude Nov. 15, 2017. During the SRP, the VRDP Shares will not be remarketed by a remarketing agent, be subject to optional or mandatory tender events, or supported by a liquidity provider.
At the conclusion of the SRP for the VRDP Shares, the funds may mutually elect to extend the SRP with the holders of the VRDP Shares or enter into a new Special Rate Period with those holders or different qualified parties. Alternatively, the funds at that time may seek to appoint a liquidity provider and a remarketing agent for the VRDP Shares, and designate the subsequent rate period and following rate periods as minimum rate periods. In this case, the VRDP Shares will be remarketable securities, available for purchase by qualified third party investors.
FUTURE REMARKETINGS
If the rate periods subsequent to the SRP for the VRDP Shares now under SRP are designated as minimum rate periods, the funds will appoint a liquidity provider and a remarketing agent for the VRDP Shares. In this event, the VRDP Shares would be expected to benefit from an unconditional and irrevocable purchase obligation (see VRDP PURCHASE OBLIGATION below) similar to other Fitch-rated VRDP Shares issued by Nuveen closed-end funds. Under these circumstances, Fitch would expect to assign a short-term rating to the VRDP Shares based on the short-term rating of the liquidity provider(s) designated at that time.
FUND PROFILES
NQP, NUO and NXJ are closed-end management investment companies regulated by the Investment Company Act of 1940 (the Act). The funds invest at least 80% of their managed assets in municipal securities that are exempt from regular federal tax and applicable state personal income tax and may invest up to 20% of assets in below investment-grade and/or unrated securities.
FUND LEVERAGE
NQP's total leverage on Oct. 31, 2016 consisted of about $305 million of preferred shares and about $77 million of tender option bonds (TOBs) and effective leverage was about 39%.
NUO's total leverage on Oct. 31, 2016 consisted of about $148 million of preferred shares and about $31 million of tender option bonds (TOBs) and effective leverage was about 36%.
NXJ's total leverage on Oct. 31, 2016 consisted of about $314 million of preferred shares and about $101 million of tender option bonds (TOBs) and effective leverage was about 38%.
VRDP PURCHASE OBLIGATION
The short-term ratings previously assigned to the VRDP Shares of NQP, NUO and NXJ were directly linked to the short-term creditworthiness of the associated liquidity provider. The VRDP Shares were supported by a purchase agreement to ensure full and timely repayment of all tendered VRDP Shares of such series plus any accumulated and unpaid dividends.
THE ADVISORS
NFA, a subsidiary of Nuveen Investments, is the funds' investment advisor. NFA is responsible for the funds' 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 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 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 the VRDP Shares under SRP, terms relevant to structural protections, including asset coverage and effective leverage are set forth in the Notice of SRP, which may be extended in the future. Any future changes to terms that weaken the structural protections may have negative rating implications.
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.
For additional information about Fitch's rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found 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 Nuveen Fund Advisors.
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Applicable Criteria
Rating Closed-End Funds and Market Value Structures (pub. 09 Sep 2016)
https://www.fitchratings.com/site/re/886753
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