* News Bulletin: Money fund assets increased by $26.2 billion Tuesday, according to Money Fund Intelligence Daily. However, the increase continues to be entirely in Treasury and Government money funds. See MFI Daily for more. *
Money market mutual funds appear to have survived the selling tsunami caused by Reserve Primary Fund's "breaking of the buck" last Tuesday, but the same can't be said for the handful of funds remaining in the "enhanced cash" sector. It appears that none of the survivors will make it. Last night Moody's revealed downgrades of American Beacon Cash Plus Trust from Aaa to Ba, and of Reserve Enhanced Cash Strategies Portfolio LLC, from B/MR2 from Aaa/MR2. Reserve Yield Plus (RYPQX) has already been downgraded and "broken the buck"; this fund too is a short-term bond fund and not a money market fund. These three are practically the only remaining funds in the formerly $300 billion enhanced cash space. (See also the news of BNY Mellon securities lending fund and Dreyfus money fund support actions in Reuters' "BNY Bank of NY Mellon has big money fund bailout charge".
Moody's says, "American Beacon Cash Plus Trust ... is a non-registered private placement offering. The rating remains on review for possible further downgrade. At the same time, the Trust's MR1 market risk rating has been placed on review for downgrade. Today's actions follow American Beacon's decision to temporarily suspend the current practice of providing payments for redemptions of shares entirely in cash on the redemption date. American Beacon Advisors, Inc. stated that effective September 19, 2008, proceeds from redemption requests would be made in pro-rata payment of cash and in-kind distributions of securities held by the Trust." It adds, "The Trust's portfolio, whose net asset value was calculated on September 21st at $0.9922, owns high quality assets rated P-1, with a minimum Moody's long-term rating of A2. The portfolio assets primarily consist of bank obligations, with 50% or so of portfolio assets currently in overnight securities and the last security maturing within nine months. Moreover, the Trust does not hold impaired assets."
On Reserve Enhanced Cash Strategies Portfolio LLC, Moody's says, "Today's downgrade ... reflects RMCI's decision to suspend redemption in the Fund. The decision was taken by RMCI to preserve the net asset value of the Fund, which was $1.00 as of September 18, 2008. Moody's considers the decision to suspend cash redemptions a material deviation from the fund's stated objective to provide daily liquidity. The MR rating on review for further downgrade reflects Moody's view that Fund's NAV may suffer mark-to market deterioration during the liquidation of the portfolio. The credit and market risk ratings remain on review for further downgrade."
Moody's also downgraded a number of other Reserve funds. (Click here for all of Moody's recent ratings.) Their release says, "The rating actions were taken due to a combination of factors that affect each of the funds to varying degrees, including: (1) Depressed net asset value levels with the potential for further declines upon liquidation of portfolio securities; (2) RMCI's decision to suspend redemptions or defer redemption proceeds from various Funds; and (3) Increased operational risk at Reserve Management Corporation as they attempt to execute liquidation plans for all the Funds. Moody's also noted that RMCI's rapid growth over the last couple of years, combined with the extreme conditions that have overtaken the firm over the last week or so, are likely to have increased the operational risk at the firm." Finally, Moody's says, "Lawsuits reportedly filed by several parties, including Ameriprise Services, Inc. filed in the United States District Court for the District of Minnesota last week may further complicate the plans of the Reserve Management Company, Inc. to proceed with its plans of liquidation." (See Ameriprise's Q&A here.)
