NEW YORK - (Business Wire) Fitch Ratings has assigned an 'AAA' rating to the following securities issued by Nuveen Virginia Dividend Advantage Municipal Fund 2 (NYSE Amex: NNB), a municipal closed-end fund managed by Nuveen Asset Management: --Up to $43,200,000 of MuniFund Term Preferred Shares, 2.80% Series 2014, with a liquidation preference of $10 per share (MTP Shares), due Dec. 1, 2014.
The 'AAA' rating is based on sufficient asset coverage provided to the MTP Shares by the fund's underlying portfolio of assets and the capabilities of Nuveen Asset Management as investment advisor. The fund used the net proceeds from the sale of MTP Shares to redeem in full its outstanding Municipal Auction Rate Cumulative Preferred Shares while maintaining or slightly increasing the fund's leveraged capital structure. The closing date occurred on Nov. 4, 2009.
Nuveen Virginia Dividend Advantage Municipal Fund 2 is a diversified, closed-end management investment company that commenced operations on Nov. 15, 2001. As of Oct. 21, 2009, the fund's total assets were $126.3 million. The MTP Shares are expected to trade on the New York Stock Exchange (NYSE) under the ticker 'NNB Pr C' within 30 days after the date of the Oct. 28, 2009 prospectus filing with the Securities and Exchange Commission. Prior to the commencement of trading on the NYSE, MTP Shares will remain illiquid. Regardless, Fitch rating on the MTP Shares only speaks to credit risk of the security and not to potential liquidity in the secondary market.
At the time of the issuance of the MTP Shares, the fund's pro forma asset coverage ratio, as calculated in accordance with the Investment Company Act of 1940 (1940 Act), is in excess of 200%, which is the minimum asset coverage required by the 1940 Act. Also, at the time of issuance, the fund's pro forma asset coverage ratio, as calculated in accordance with the Fitch overcollateralization test per the Fitch 'Closed-End Fund Debt and Preferred Stock Rating Criteria' is in excess of 100%, which is the minimum asset coverage deemed consistent with an 'AAA' rating. Fitch's closed-end fund rating criteria, published on Aug. 17, 2009, is available at 'www.fitchratings.com' under the following headers:
Criteria then Financial Institutions then Fund & Asset Manager Ratings
The terms of the MTP Shares stipulate that the fund maintain asset coverage under the 1940 Act of no less than 225% of the outstanding MTP Shares. The terms of the MTP Shares further restrict the ability of the fund to add economic leverage through participation in tender option bond programs. Specifically, the fund's asset coverage ratio, when including the economic leverage arising from the use of such securities, is not permitted to be less than 200%. The fund's investment guidelines do not specifically reference minimum asset coverage ratios related to Fitch's rating criteria, although given the permitted investments of the fund, Fitch views the MTP Shares' provisions requiring the maintenance of minimum ongoing asset coverage ratios as being sufficiently conservative, at present, to achieve an 'AAA' rating.
Fitch would note, however, that the fund has the ability to assume economic leverage through derivative transactions which may not be captured by the fund's asset coverage tests. The fund has engaged in limited derivative activities in the past, 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 objective of achieving tax-exempt income. Should material derivative exposure be utilized in the future, this could have potential negative rating implications if it adversely affects asset coverage available to the rated MTP Shares.
The fund's investment objective is to provide current income exempt from regular federal and Virginia income tax. The fund pursues its objective, under normal market conditions, by investing at least 95% of its net assets in such tax-exempt municipal securities. The fund invests at least 80% of its net assets in investment grade quality municipal securities, or unrated securities judged to be of comparable quality by Nuveen Asset Management. Not more than 10% of the fund's net assets may be invested in securities rated below 'B-' by Fitch or of comparable quality by other global rating agencies, or in unrated securities that are judged to be of comparable quality by Nuveen Asset Management.
Nuveen Asset Management is the fund's investment adviser, responsible for the fund's overall investment strategy and its implementation. Nuveen Asset Management is a wholly owned subsidiary of Nuveen Investments. Founded in 1898, Nuveen Investments and its affiliates had approximately $128 billion of assets under management as of Jun. 30, 2009, of which approximately $62.5 billion was in municipal securities.
Additional information is available at www.fitchratings.com.
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Fitch Ratings, New York
Yuriy Layvand, CPA, 212-908-9191
Ian Rasmussen, 212-908-0232
or
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