Fitch Rates VMTP Shares Issued by Nuveen Closed-End Funds

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned 'AAA' Long-term ratings to the following Series 2018 Variable Rate MuniFund Term Preferred Shares (VMTP Shares) issued by three Nuveen municipal closed-end funds. The funds are managed by Nuveen Fund Advisors, LLC (NFA) and subadvised by Nuveen Asset Management, LLC (NAM). The VMTP Shares are issued in connection with the exchange offers described below.

Fitch assigns the following ratings:

Nuveen Premium Income Municipal Fund, Inc. (NPI)

--$407,000,000 of VMTP Shares Series 2018, term redemption on Dec. 1, 2018, rated 'AAA'.

Nuveen Performance Plus Municipal Fund, Inc. (NPP)

--$535,000,000 of VMTP Shares Series 2018, term redemption on Dec. 1, 2018, rated 'AAA'.

Nuveen Quality Municipal Fund, Inc. (NQI)

--$240,400,000 of VMTP Shares Series 2018, term redemption on Dec. 1, 2018, rated 'AAA'.

KEY RATING DRIVERS

The 'AAA' long-term ratings of the Series 2018 VMTP Shares primarily reflect:

--Sufficient asset coverage provided to the Series 2018 VMTP Shares as calculated per the over-collateralization (OC) tests of NPI, NPP and NQI;

--The structural protections afforded by mandatory de-leveraging provisions in the event of asset coverage declines;

--The legal and regulatory parameters that govern the operations of NPI, NPP and NQI;

--The capabilities of NFA as investment advisor and NAM as subadvisor.

THE EXCHANGE OFFERS

NPI, NPP and NQI will each issue Series 2018 VMTP Shares in exchange for all outstanding Series 2015 VMTP Shares. The Series 2015 VMTP Shares were not rated by Fitch.

FUND LEVERAGE

As of March 31, 2015, NPI had approximately $1,555.4 million in assets. Total leverage on a pro forma basis consists of $407.0 million of newly issued Series 2018 VMTP Shares and $144.8 million of tender option bond (TOB) obligations.

As of March 31, 2015, NPP had approximately $1,570.3 million in assets. Total leverage on a pro forma basis consists of $535.0 million of newly issued Series 2018 VMTP Shares and $46.3 million of TOB obligations.

As of March 31, 2015, NQI had approximately $909.3 million in assets. Total leverage on a pro forma basis consists of $240.4 million of newly issued Series 2018 VMTP Shares and $82.0 million of TOB obligations.

ASSET COVERAGE

As of March 31, 2015, the total pro forma asset coverage ratio for the above noted VMTP Shares of NPI, NPP and NQI, as calculated in accordance with the Investment Company Act of 1940 (the 1940 Act), was in excess of the minimum asset coverage threshold of 225% currently set by the terms of the preferred shares.

As of March 31, 2015, the pro forma effective leverage ratio including the impact of the VMTP issuance was 35.5% for NPI, 37.0% for NPP and 35.5% for NQI. These effective leverage ratios are below the 45% maximum effective leverage ratio allowed by the governing documents of the VMTP Shares.

STRUCTURAL PROTECTIONS

In the event of asset coverage declines, the governing documents of each series of VMTP Shares require the funds to reduce leverage in order to restore compliance with the applicable asset coverage test. Compliance with both the minimum asset coverage threshold and the 45% maximum effective leverage ratio threshold is tested daily.

Failure to cure a breach of the minimum asset coverage threshold by the allotted cure date would result in mandatory redemption of sufficient preferred shares of the fund to restore compliance. To facilitate redemption, the fund will deposit sufficient funds with a third-party redemption agent. Failure to cure a breach of the 45% maximum effective leverage ratio by the allotted cure date requires a fund to restore compliance by depositing enough funds with a third-party redemption agent to redeem a sufficient number of preferred shares and / or by reducing the amount of TOBs the fund has outstanding in an amount sufficient to restore compliance.

For the VMTP Shares of each applicable series, the total market value exposure periods (i.e. the pre-specified time period allotted for valuation, cure and redemption in the event of a breach) for the minimum asset coverage and maximum effective leverage ratio tests are within the 60 business day guidelines provided in Fitch's criteria.

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 funds' leverage and portfolio composition migrated to the outer limits of their operating and investment guidelines.

Only under remote circumstances, such as increasing the funds' issuer concentration while simultaneously migrating the portfolios 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 VMTP Shares fall below the 'AAA' threshold, and instead passed at an '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.

FUND PROFILE

NPI, NPP and NQI are closed-end management investment companies regulated by the 1940 Act. Each fund invests in municipal securities that are exempt from regular federal income tax and each fund may invest up to 20% of assets in below investment grade and/or unrated securities.

THE ADVISORS

The investment advisor for the funds is NFA, a subsidiary of Nuveen Investments. NFA is responsible for each fund's overall investment strategies and their implementation. The subadvisor, NAM, is a subsidiary of NFA that oversees the day-to-day operations of the funds. Nuveen Investments and its affiliates had approximately $233 billion of assets under management as of March 31, 2015.

RATINGS SENSITIVITIES

The ratings assigned to the 2018 VMTP Shares of each fund 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 a ratings downgrade.

Each fund has 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 on Fitch's web site 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.

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

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

Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Sept. 4, 2014);

--'Global Rating Criteria for Asset-Backed Commercial Paper' (Oct. 30, 2014);

--'Leveraged Closed-End Funds Weather U.S. Rate Shock Scenarios' (Oct. 7, 2014).

Applicable Criteria and Related Research:

Leveraged Closed-End Funds Weather U.S. Rate Shock Scenarios (Impact on Asset Coverage and Ratings Limited Due to Structural Protections)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=784190

Global Rating Criteria for Asset-Backed Commercial Paper

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=797648

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984967

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 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150519007022/en/

Fitch Ratings
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Source: Fitch Ratings

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