After several months of silence, it is apparent that money market funds aren’t “out of the woods” yet. Some funds still have exposure to investments in structured investment vehicles (“SIVs”) or similar instruments that, in turn, invested in subprime securities. SIVs use short-term borrowing to buy higher-yielding long-term assets.
For example, Legg Mason Inc. has recently entered into a capital support agreement agreeing to provide up to $400 million to bail out an institutional money market fund from potential losses incurred on debt issued by SIVs. The move will cut Legg Mason’s profit by $316 million ($195 million net of taxes) for the quarter ending March 31.
Since November, the company lined up $1.97 billion to prevent losses on three money market funds that purchased SIVs. As of March 28, Legg Mason managed a total of $176 billion in money funds.
“This is as bad of a situation of all the ones I’ve looked at,” says Andrew Richards, an analyst with Morningstar Inc. in Chicago. “The good news is that [Legg Mason is] detoxifying their funds.”
Debt issued by SIVs account for about 2 percent of Legg Mason’s money-market assets. According to a regulatory filing on March 31, the latest move serves to cushion the Liquid Reserves Portfolio from securities issued by Axon Financial Funding Ltd. and Issuer Entity LLC. Based in the Cayman Islands, Axon Financial defaulted in November.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing investors regarding their subprime investment problems. For further information, please contact us.