Things have gone from from bad to extremely ugly in the money market fund world over the past two and a half days since The Reserve's Primary fund "broke the buck." Putnam just announced that it is closing its Putnam Prime Money Market Fund effective today, Moody's has put Lehman Brothers AAA-rated money funds on review for downgrade, and asset outflows, while not as bad as some suggest, were ugly through yesterday. Money fund assets declined by $78.7 billion yesterday, though the Reserve run accounted for $32.3 billion of the decline, according to our Money Fund Intelligence Daily. Watch for Pete Crane at 1:40 on Bloomberg TV for an update.
"Moody's Investors Service placed today on review for possible downgrade thirteen Aaa and Aaa/MR1+-rated money market funds and one bond fund rated Aaa that are sponsored and managed by Lehman Brothers Asset Management (LBAM), an indirect subsidiary of Lehman Brothers Holdings Inc., which filed for bankruptcy on September 15, 2008 under Chapter 11 of the U.S. Bankruptcy Code. Moody's cited three main reasons for its review: Liquidity and prospective operational concerns related to the ability of LBAM-sponsored funds to sustain increasing levels of redemptions by their shareholders during these extreme market conditions; Potential for reduced support available to the funds prospectively, given the LBHI bankruptcy; and Elevated uncertainty associated with the potential change in LBAM's ownership and structure, particularly in the context of current market instability."
Putnam's statement says, "The Board of Trustees of the Putnam Funds announced today that it has voted to close the institutional Putnam Prime Money Market Fund, effective as of 5:00 p.m. on September 17, 2008, and distribute all fund assets. Putnam Prime Money Market Fund is offered to institutional clients with a minimum initial investment of $1 million. The Trustees' action was not related to the portfolio's credit quality, but was instead a reaction to marketwide liquidity issues. The fund, like Putnam's other money market funds, has no exposure to securities of Lehman Brothers, Washington Mutual or AIG at the parent-company level. The fund's net asset value calculated on September 16, 2008 was $1.00 per share."
It continues, "On September 17, the fund experienced significant redemption pressure. Serious constraints on liquidity in money market instruments created the risk that in order to process redemptions, the fund would realize losses in selling its portfolio securities. In the face of these challenges, the Trustees determined to close the fund to ensure equitable treatment of all fund shareholders. Putnam and the Trustees believe that this action is in the best interests of shareholders because it ensures an orderly distribution of assets in light of the current unusual market conditions and treats all shareholders in an equitable manner."
Finally, they say, "Putnam and the Trustees are working to develop a detailed plan of distribution, with the goal of providing shareholders with the opportunity to receive distributions as expeditiously as possible, depending on market conditions. The Fund intends to provide additional information shortly regarding the plan as part of ongoing communications to shareholders. The action that the Board has taken is specific to the institutional Putnam Prime Money Market Fund in response to that fund's specific circumstances. This decision does not relate to other Putnam funds, including the retail Putnam Money Market Fund and Putnam VT Money Market Fund, or to stable value funds managed by Putnam for defined contribution clients."
