TEXT-Fitch affirms Nuveen Quality Income Municipal Fund VRDP shares

Thu Dec 20, 2012 5:29pm EST

Dec 20 - Fitch Ratings affirms the 'AAA' long-term ratings and 'F1'
short-term ratings assigned to variable rate demand preferred shares (VRDP
shares) issued by Nuveen Quality Income Municipal Fund, Inc. (NQU), a
municipal closed-end fund managed by Nuveen Fund Advisors, Inc. (NFA) and
subadvised by Nuveen Asset Management, LLC (NAM) as follows:

--$428,400,000 of VRDP shares, series 1, due Dec. 1, 2040, affirmed at 'AAA/F1'.

The affirmation follows the issuance of additional $40,000,000 of the currently
outstanding series 1 VRDP shares. The additional VRDP shares have identical
terms and belong to the same series as the original VRDP shares. Following the
issuance series 1 VRDP shares now total $428,400,000.

KEY RATING DRIVERS
The 'F1' short-term rating primarily reflects:
--The credit strength of JPMorgan Chase Bank (rated 'A+/F1' by Fitch), as
liquidity provider.
--The terms and conditions of the VRDP shares purchase agreement (purchase
agreement).

The 'AAA' long-term rating primarily reflects:
--Sufficient asset coverage provided to the VRDP shares as calculated per the
fund's overcollateralization (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 the fund's operations.
--Both the short- and long-term ratings also reflect the capabilities of NFA as
investment advisor and NAM as subadvisor.

TENDER AND REMARKETING
The VRDP shares benefit from a feature giving investors the right to tender the
securities with a seven-day notice for remarketing. The VRDP shares are also
subject to a mandatory tender for remarketing upon the occurrence of certain
events, such as non-payment of dividends by the fund, among others. VRDP shares
that are unsuccessfully remarketed are purchased by the liquidity provider.

The VRDP shares have a 30-year mandatory redemption date and pay an adjustable
dividend rate set weekly by the remarketing agent. Should a remarketing be
unsuccessful, the dividend rate will reset to a maximum rate as defined in the
governing documents.

PURCHASE OBLIGATION
The VRDP shares are supported by a purchase agreement to ensure full and timely
repayment of the liquidation preference amount plus any accumulated and unpaid
dividends to holders upon occurrence of certain events. The agreement requires
the liquidity provider to purchase all VRDP shares tendered for sale that were
not successfully remarketed. The liquidity provider must also purchase all
outstanding VRDP shares if the fund has not obtained an alternate purchase
agreement prior to the termination of the purchase agreement being replaced or
following the downgrade of the liquidity provider's rating below 'F2' (or
equivalent).

The purchase of VRDP shares pursuant to the purchase agreement is unconditional
and irrevocable, and as such the short-term ratings assigned to the VRDP shares
are directly linked to the short-term creditworthiness of the liquidity
provider.

The liquidity provider's obligations under the purchase agreement have scheduled
termination dates. Fitch expects the purchase agreement to be subsequently
extended, with terms that are substantially similar to the current purchase
agreement.

ASSET COVERAGE
The fund's asset coverage ratio for the VRDP 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 fee agreement
between the fund and the liquidity provider (Minimum VRDP Asset Coverage test).

The fund has also covenanted with the liquidity provider to maintain the
Effective Leverage Ratio for both VRDP shares and floating-rate certificates of
tender option bonds below 45% (or 46% if the increase in the ratio is due
exclusively to asset market value volatility). The fund's Effective Leverage
Ratio is currently below 45%.

In the event of asset coverage declines, the fund's governing documents will
require the fund to reduce leverage in order to restore compliance with the
asset coverage test breaching the required threshold.

STRESS TESTS
Fitch performed various stress tests on the fund to assess the strength of the
structural protections available to the VRDP 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 the fund's issuer
concentration, while simultaneously migrating the portfolio to a mix of 80%
long-term 'BBB' bonds and 20% high yield bonds, did the asset coverage available
to the VRDP 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 fund's permitted investments, municipal issuer
diversification framework and mandatory deleveraging mechanisms as consistent
with an 'AAA' rating.

THE FUND
The fund is a closed-end management investment company regulated by the
Investment Company Act of 1940. The fund seeks to provide current income exempt
from regular federal income tax and to enhance portfolio value. The fund
currently invests primarily in investment grade quality municipal bonds.

NFA, a subsidiary of Nuveen Investments, is the fund's investment advisor,
responsible for the fund's overall investment strategy and its implementation.
NAM is a subsidiary of NFA and oversees the day-to-day operations of the fund.
Nuveen Investments and its affiliates had approximately $220 billion of assets
under management as of Nov. 30, 2012.

RATINGS SENSITIVITY
The ratings assigned to the VRDP shares may be sensitive to material changes in
the leverage composition, portfolio credit quality or market risk of the fund,
as described above. A material adverse deviation from Fitch guidelines for any
key rating driver could cause ratings to be lowered by Fitch.

Certain terms of the Minimum VRDP Shares Asset Coverage Test and Effective
Leverage Ratio are set in the liquidity and fee agreements, which are renewed on
a periodic basis. Changes to these terms that weaken the tests may have negative
rating implications.

The short-term ratings assigned to the VRDP shares may also be sensitive to
changes in the financial condition of the liquidity provider. A downgrade of the
liquidity provider to 'F2' would result in a downgrade of the short-term ratings
of the VRDP shares to 'F2,' absent other mitigants. A downgrade below 'F2', on
the other hand, would not necessarily result in a downgrade of the short-term
rating of the VRDPs, given the acceleration features in the transaction that
would result in a mandatory tender of the VRDPs for purchase by the liquidity
provider.

The fund has the ability to assume economic leverage through derivative
transactions which may not be captured by the fund's Minimum VRDP Asset Coverage
Test or Effective Leverage Ratio. 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. Material derivative exposures in the future
could have potential negative rating implications if it adversely affects asset
coverage available to rated VRDP shares.Applicable Criteria and Related Research:
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012);
--'Global Rating Criteria for Asset-Backed Commercial Paper' (Nov. 8, 2012);
--'Municipal Closed-End Funds Diversify Funding and Moderate Rollover Risk'
(Oct. 11, 2012);
--'Municipal CEFs Refinance Pre-Crisis ARPS' (May 3, 2012).

Applicable Criteria and Related Research:
Rating Closed-End Fund Debt and Preferred Stock
Global Rating Criteria for Asset-Backed Commercial Paper
Municipal Closed-End Funds Diversify Funding and Moderate Rollover Risk
Municipal CEFs Refinance Pre-Crisis ARPS
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