It's now almost a certainty that no money market mutual funds will "break the buck" or drop below $1.00 a share due to the past 9 months of subprime and SIV liquidity crisis. While at least 20 advisors have been, or eventually likely will be, forced to take protective action to support the handful of securities that are in or threaten default, the threat from structured investment vehicle, or SIV, debt is fast receding and approaching resolution. Sigma, the last and largest of SIVs, continues to make payments and remain robust, and it sounds as if senior debtholders of Cheyne, Axon, and Orion will soon receive most, if not all, of their remaining outstanding debt.
On Federated Investors' quarterly earnings call Friday, CEO Chris Donahue said, "There's been a lot of attention on SIV investments with recent questions coming on the Sigma structure. We have continued to see the winding down of this position as the notes mature. We have received all payments, when and as due, and expect to continue to be paid in full from these investments."
Donahue continues, "Our remaining exposure is approximately $1.2 billion, and we'll be down to about $650 million by the end of May, with the remaining exposure gone by August. We continue to believe that credit quality within the Sigma structure remains strong. We remain comfortable with the credit quality of all our money market investments." In the Q&A segment, Federated added that Sigma had made "a significant payment a few days ago".
Federated's call also debunked the myth that money funds were in danger of significant lost fee revenue due to low yields, saying the company took a mere $70K charge for the quarter "from fee waivers to maintain positive yields" in Treasury & repo funds. These waivers "have not reoccurred" and are not expected to. Finally, the company took a $2.6 million charge to cover "changing prospectus language," and said that at 2.6 basis points, running the $10 billion Florida local government investment pool (LGIP) is "still profitable".
