Lehman Brothers Holdings Inc. and subsidiary Neuberger Berman are the fifteenth advisor to publicly disclose support actions taken to protect affiliated money market mutual funds and their shareholders. Lehman recently disclosed the purchase of $150 million in Sigma Finance medium-term notes in a "no-action" letter just posted by the SEC. Like others before it, the purchase likely occurred long before the fund's $1.00 was threatened and in order to satisfy ratings agency requirements and/or to calm jittery investors. The action is the first disclosed related to Sigma Finance.
While there may have been more support actions triggered by a cut in debt pricing by a third-party service in April, the Sigma, and overall SIV, threat to money funds continues to recede. (See "Money Funds Out of the Woods? Threat From Final SIV Sigma Fading".) The finance company continues making payments on-time and in-full, and continues to be money fund eligible (A-1+/P-2, or "Second Tier"), so some likely questioned and even ignored the pricing service's sudden April turnabout. The current bailout notwithstanding, it's looking increasingly likely that money funds will not suffer significant losses from this final outstanding SIV issue.
Lehman's original letter, written by Willkie Farr & Gallagher's Rose DiMartino on behalf of Prime Master Series, a series of Institutional Liquidity Trust, to the SEC said, "Approximately 1.7% of the Fund's assets as of April 23, 2008 consisted of two Medium-Term Notes issued by Sigma Finance Inc.... Due to current market conditions in the credit markets, including the ability of certain issuers to obtain refinancing, including the issuer of the Notes, the current market value of each Note, as determined by an independent third party pricing agent, is less than its amortized cost value."
"The Adviser has determined that it would be advisable to sell the Notes. However, because of the absence of liquidity in the market for the Notes, the Adviser believes ... that it would not be in the best interests of the Fund and its shareholders to dispose of the Notes in the market. Nonetheless, subject to obtaining the no-action assurance requested in the letter, Lehman Brothers is prepared to purchase the Notes in their entirety from the Fund for cash at each Note's amortized cost," said the letter.
Note that Lehman was previously incorrectly identified as having taken support actions over its money funds. (See "Lehman Liquidations, Support Not Money Fund, Enhanced Related".) This latest disclosure now makes them officially support action number 15. Finally, in other news, Citibank Online Investments has added the U.S. domestic institutional money market funds from Lehman Brothers Asset Management.
