Fitch Ratings affirms the 'AAA' rating of the following securities issued by Nuveen Insured Massachusetts Tax-Free Advantage Municipal Fund (AMEX:NGX), a municipal closed-end fund managed by Nuveen Fund Advisors, Inc. (NFA) and sub-advised by Nuveen Asset Management, LLC (NAM):
--$22,075,000 of MuniFund Term Preferred Shares (MTP Shares), series 2015, with a liquidation preference of $10 per share, due March 1, 2015.
KEY RATING DRIVERS
The 'AAA' rating is based on asset coverage provided to the MTP Shares by the fund's portfolio, structural protections afforded by mandatory deleveraging provisions in the event of asset coverage declines, the legal and regulatory parameters that govern the fund's operations and the capabilities of NFA as investment advisor and NAM as sub-advisor.
As of Dec. 30, 2011, the fund's pro forma leverage was approximately $22.4 million, or 36% of the total assets of $62.4 million. Leverage consisted of $22.1 million of series 2015 MTP Shares and $0.3 million of floating-rate certificates of tender option bonds.
As of Dec. 30, 2011, the fund's asset coverage ratio for total outstanding preferred shares, as calculated in accordance with the Investment Company Act of 1940, was approximately 285%, which is in excess of the minimum asset coverage of 225% required by the fund's governing documents (Preferred Asset Coverage Test).
Additionally, the fund's Dec. 30, 2011 effective leverage ratio for both preferred shares and floating-rate certificates of tender option bonds of 36% was below the maximum leverage ratio of 50% required by the fund's governing documents (Effective Leverage Test).
Should the Preferred Asset Coverage Test decline below its threshold amount or the Effective Leverage Test increase above its threshold amount, the governing documents' mandatory redemption provisions will require the fund to reduce the leverage in a sufficient amount to restore compliance with the applicable overcollateralization test(s).
Fitch performed various stress tests on the fund 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 fund's leverage and portfolio composition migrated to the outer limits of its operating and investment guidelines.
Only under remote circumstances, such as increasing tender option bond leverage while simultaneously migrating the portfolio 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 these stress scenarios, combined with their minimal rating impact, Fitch views the fund's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.
Nuveen Insured Massachusetts Tax-Free Advantage Municipal Fund is a non-diversified, closed-end management investment company that commenced investment operations in 2002. The fund's investment objectives include providing current income exempt from regular federal income tax, the alternative minimum tax applicable to individuals and Massachusetts income tax.
The fund pursues its objectives, under normal circumstances, by investing at least 80% of its managed assets in a portfolio of municipal bonds that pay interest that is exempt from regular federal income tax, the federal alternative minimum tax applicable to individuals and Massachusetts income tax and that are covered by insurance guaranteeing the timely payment of principal and interest. Furthermore, under normal circumstances, the fund may invest up to 20% of its managed assets in uninsured municipal bonds backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities to ensure timely payment of principal and interest, or other municipal bonds that, at the time of investment, are rated investment grade quality by Fitch or of comparable quality by other global rating agencies, or in unrated securities that are judged to be of comparable quality by NAM.
NFA is the fund's investment advisor, responsible for the fund's overall investment strategy and its implementation. NAM is a wholly owned subsidiary of NFA and oversees the day-to-day operations of the fund. NFA is a subsidiary of Nuveen Investments. Founded in 1898, Nuveen Investments and its affiliates had approximately $198 billion of assets under management as of Sept. 30, 2011.
Fitch notes that the fund has the ability to assume economic leverage through derivative transactions which may not be captured by the fund's Preferred Asset Coverage Test or Effective Leverage Test. The fund does not currently engage in derivative activities 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.
As described above, the rating assigned to the MTP Shares may be sensitive to material changes in the leverage composition, credit quality of portfolio assets or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the 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'.
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 NFA.
Applicable Criteria and Related Research:
--'Closed-End Fund Debt and Preferred Stock Rating Criteria' (Aug. 16, 2011);
--'Tax-Exempt CEFs Change Leverage' (June 17, 2011);
--'Tax-Exempt Closed-End Funds Weather Price Declines' (Feb. 2, 2011);
--'Closed-End Funds: Evolving Use of Leverage and Derivatives' (Sept. 27, 2010);
--'Closed-End Funds: Redemptions Provide Some Liquidity to Illiquid ARPS Market' (Aug. 31, 2010).
Applicable Criteria and Related Research:
Closed-End Funds: Redemptions Provide Some Liquidity to Illiquid ARPS Market
Rating Closed-End Fund Debt and Preferred Stock
Tax-Exempt CEFs Change Leverage (ARPS Balances Reduced; New Securities Provide Flexibility)
Tax-Exempt Closed-End Funds Weather Price Declines (Asset Coverage Remains Strong)
Closed-End Funds: Evolving Use of Leverage and Derivatives
Ralph Aurora, +1-212-908-0528
One State Street Plaza
New York, NY 10004
Russ Thomas, +1-312-368-3189
Ian Rasmussen, +1-212-908-0232
Brian Bertsch, +1-212-908-0549 (New York)
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