As we've mentioned in past news briefs, the main threat to money market mutual funds from structured investment vehicles, or SIVs, is likely past. But disclosures related to previously taken support actions continue to surface. The latest, the 13th advisor to-date, comes from HSBC Holdings subsidiary HSBC Investments USA. The Securities & Exchange Commission disclosed a "no-action" letter today which details an "Indemnication Agreement" HSBC entered into with its HSBC Money Market Funds "to prevent any losses realized on the [SIV] Notes from causing the Fund's market-based net asset value per share to fall below $0.9975."
HSBC counsel Dechert's January 9, 2008 letter (the SEC has been granting confidentiality delays in releasing) asks the SEC for "no-action" on enforcement "under Section 17(a), 17(d) or 12(d)(3) of the 1940 [Investment Company] Act" to enter into an "Indemnification Agreement". The letter says, "The Fund currently holds in its portfolio notes issued by certain structured investment vehicles ("SIVs") in the amounts listed in Appendix A [including $83 million in Stanfied Victoria, $225 million in Whistlejacket, $130 million in K2, and $100 million in Links].... Stanfield Victoria was recently downgraded by Moody's ... [and are] no longer Eligible Securities under Rule 2a-7. The Board ... has determined that it is in the best interests of the Fund and its shareholders not to dispose of the Stanfield Victoria Notes at this time." It adds that "one or more of the other Notes may be downgraded and cease to qualify as Eligible Securities or may otherwise decline in value."
The letter continues, "In order to mitigate any negative impact such events may have on shareholders of the Fund, although under no obligation to do so, ISGB [HSBC] and the Trust, on behalf of the Fund, have determined to enter into the Indemnification Agreement.... The Indemnification Agreement effectively insulates the Fund and its shareholders from the risk that losses arising from the Fund's current exposure to the SIVs might cause the Fund to 'break the buck'." (Click here to see all of the SEC's "no-action" letters to-date.)
