Fitch Rates iMTP Shares Issued by Nuveen Closed End Fund

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AAA' Long-term rating to the $72,000,000 of series 2018 Institutional MuniFund Term Preferred Shares (iMTP Shares) issued by Nuveen Texas Quality Income Municipal Fund (NTX) in connection with the refinancing described below. NTX is managed by Nuveen Fund Advisors, LLC (NFA) and subadvised by Nuveen Asset Management, LLC (NAM).

KEY RATING DRIVERS

The 'AAA' long-term ratings of the iMTP Shares primarily reflects:

--Sufficient asset coverage provided to the iMTP Shares as calculated per the NTX over-collateralization (OC) tests;

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

--The legal and regulatory parameters that govern NTX operations;

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

THE RE-FINANCING

NTX will use the proceeds of the iMTP Share issuance to fully redeem outstanding MuniFund Term Preferred Shares (MTP Shares). The proceeds of the newly issued iMTP Shares will be deposited irrevocably in an escrow account with the MTP Shares redemption agent pending the required 10-day notification period to MTP shareholders. Accordingly the issuance of new iMTP Shares will not adversely affect the ratings of the existing MTP Shares while they remain outstanding. The amount deposited with NTX's redemption agent will equal the liquidation preference of the MTP Shares and any accrued and unpaid dividends. When the notification requirement has passed, Fitch expects the outstanding MTP Shares to be redeemed using the escrowed iMTP Share proceeds, and the MTP Shares will then be marked paid in full by Fitch.

FUND LEVERAGE

As of Feb. 28, 2015, NTX had approximately $232.5 million in assets. Total leverage on a pro forma basis, consists of $72 million of newly issued Series 2018 iMTP shares, and $3.96 million of tender option bond (TOB) obligations.

ASSET COVERAGE

As of Feb. 28, 2015, NTX's total pro forma asset coverage ratio for the above noted iMTP Shares, as calculated in accordance with the Investment Company Act of 1940, was in excess of the minimum asset coverage threshold of 225% currently set by the terms of the preferred shares.

As of Feb. 28, 2015, the pro forma effective leverage ratio for NTX, including the impact of the iMTP issuance, was 32.7%. This effective leverage ratio is below the 45% maximum effective leverage ratio allowed by the governing documents of the iMTP Shares.

STRUCTURAL PROTECTIONS

In the event of asset coverage declines, the governing documents of the i-MTP Shares require the fund 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 are tested daily.

Failure to cure a breach of the minimum asset coverage threshold by the allotted cure date results in mandatory redemption of sufficient i-MTP Shares to restore compliance. To facilitate redemption, NTX will deposit sufficient funds with a third-party custodian.

Failure to cure a breach of the 45% maximum effective leverage ratio by the allotted cure date requires NTX to restore compliance by depositing enough funds with a third-party custodian to redeem a sufficient number of i-MTP Shares and / or reducing the amount of TOBs the fund has outstanding in an amount sufficient to restore compliance.

For the minimum asset coverage and maximum effective leverage ratio tests, 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) are within the 60 business day guidelines provided in Fitch's criteria.

STRESS TESTS

Fitch performed various stress tests on NTX 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 NTX's leverage and portfolio composition migrated to the outer limits of its operating and investment guidelines.

Only under remote circumstances, such as increasing NTX's 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 iMTP Shares fall below the 'AAA' threshold, and instead passed at a 'AA' rating level.

Given the highly unlikely nature of the stress scenarios, and the minimal rating impact, Fitch views NTX's permitted investments, municipal issuer diversification framework and mandatory deleveraging mechanisms as consistent with an 'AAA' rating.

FUND PROFILE

NTX is a closed-end management investment company regulated by the Investment Company Act of 1940. NTX invests in municipal securities that are exempt from regular federal tax. NTX may invest up to 20% of assets in below investment grade and / or unrated securities.

THE ADVISOR

The investment advisor for NTX is NFA, a subsidiary of Nuveen Investments. NFA is responsible for the fund's overall investment strategies and their implementation. The sub-advisor, NAM, is a subsidiary of NFA that oversees the day-to-day operations of NTX. Nuveen Investments and its affiliates had approximately $230.8 billion of assets under management as of Dec. 31, 2014.

RATINGS SENSITIVITIES

The ratings assigned to the iMTP Shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of NTX, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause a ratings downgrade.

NTX 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. NTX does not currently engage in derivative activity and does not envision engaging in material amounts of such activity in the future. In fact, such activity is limited by the investment guidelines of NTX and could run counter to its investment objectives of achieving tax-exempt income. Material derivative exposures in the future could have potential negative rating implications if it adversely affects 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).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982758

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.

Fitch Ratings
Primary Analyst (NTX)
Ralph Aurora, +1-212-908-0528
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Russ Thomas, +1-312-368-3189
Director
or
Committee Chairperson
Ian Rasmussen, +1-212-908-0232
Senior Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
[email protected]
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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