Nuveen Has Very Little Exposure To Detroit Muni Meltdown

Includes: NBB, NEA, NVG
by: Holmes Osborne

It appears as if Nuveen's lineup of closed-end municipal bond funds has very little exposure to Detroit's municipal debt. In case you haven't heard, Detroit missed a payment on its pension last week. Some of the city's debt and liabilities will have to be restructured to meet future payments.

Nuveen has an Excel spreadsheet on its website listing the recent holdings of its 73 closed-end funds. Last week, I wrote about what a bargain these funds are relative to their net asset values and dividend yields. According to an article on Bloomberg, Nuveen manages $95 billion in municipals but holds only $190 million in Detroit bonds.

A further look at Nuveen's holdings shows that many of these issues are not under the auspices of the city but rather other entities. Nuveen Build American (NYSE:NBB) holds almost $13 million in Detroit School Bonds, which still maintain a AA-rating from Standard & Poor's. Other holdings include sewer and water issues, which have an A-rating from Standard & Poor's. Nuveen Quality Income (NQU) has Wayne Airport bonds, rated single-A. The Nuveen Municipal Opportunities Fund (NIO) has $6 million in what looks to be affected Detroit debt (rated CC), but that's a drop in the bucket compared to its $2.4 billion in holdings.

The revenue bonds have higher ratings as they are reliant on the earnings from water, sewage, airports, etc. It's the government obligations that are riskier. As I mentioned in last week's article, I feel that some of the closed-end funds are trading at a quite a bargain. If you can get a 6% yield on municipal holdings, that's a pretty good deal -- provided we don't have any more Detroits in the short term.

Disclosure: I am long NEA, NIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.