The fund pursues its investment objectives by investing in a portfolio of high quality, short-term municipal obligations, which may have fixed, floating, or variable rates of interest, and typically include VRDNs putable to a third party financial institution in seven days or less.
To limit liquidity risk, the funds seek to invest at least 30% of their portfolios in weekly liquid assets, which are typically VRDNs putable to a third party financial institution in seven days or less.
The actions follow a re-assessment of risk to VRDN transactions with underlying ratings, particularly with respect to interest rate assumptions on the notes given the potential for a stressed market environment for VRDNs.
When sufficient demand exists for a given VRDN, the rate on the note is based on the clearing rate determined by the daily or weekly remarketing.
Currently, two of the outstanding VRDN transactions have been put to the liquidity facility as bank bonds, one for more than six months and the other for almost a year.
For transactions with a LOC provider, Fitch has downgraded the long-term ratings to the relevant LOC provider's long-term rating with an Outlook corresponding to the related bank's outlook, and affirms the short-term ratings of all LOC-backed VRDN transactions.
Fitch places the long- and short-term ratings of the following six student loan VRDN transactions with support from a liquidity facility on Rating Watch Negative: