The SEC recently posted a flurry of responses to "no-action" letters written over the past few months requesting extensions of capital support agreements for money market funds. The new issue of mutual fund newsletter Fund Action reports that fund firms were unable to extend support beyond a date of November 6, 2009. The no-action letters and responses just posted involve the following funds: Columbia Cash Reserves, Columbia Money Market Reserves; Citi Liquid Reserves and Western Asset Money Market Fund; Northern Institutional Diversified Assets, Liquid Assets and Prime Obligations Portfolio, and SEI Prime Obligations.
We haven't heard from the SEC yet whether this is a new policy, but Fund Action says the SEC "will no longer permit firms to keep support facilities for troubled money market funds" and cited Columbia in saying "Nov. 6 was the maximum period that the SEC would permit an extension." The FA article quotes Peter Crane, "The SIV chapter in money funds is slowly but surely drawing to a close. Whether money funds are ready for that remains to be seen. This may cause firms that won't be ready by that time to purchase securities outright from their money funds. This may be another effort by regulators to push the bird out of the nest."
The December 11, 2008, Columbia Cash Reserve letter, written by Stephen Keen of Reed Smith, said, "The process of restructuring each of the Covered Securities is continuing and is unlikely to be completed before the scheduled termination of the Original Agreement on December 13, 2008. Moreover, current market conditions continue to create a risk of an unanticipated default that would add to the Covered Securities. The Board therefore held meetings on November 11 and December 10, 2008 at which they approved an extension of the termination date of the Agreement to November 6,2009."
Western Asset, which has since divested itself of all SIVs, said in its letter, "It is important to note that since the crisis in the credit markets began, Legg Mason has taken a number of steps to support the Funds and other money market funds it sponsors, including entering into support arrangements and increasing them to the levels currently in effect and purchasing troubled securities from the Funds and other funds outright. Legg Mason has consulted with and obtained the approval of the Funds' Boards regarding each of these actions that involved the Funds. Similarly, Legg Mason has sought the Boards' approval to extend the expiration date of the support arrangements."
Finally, Northern's letter refers to "Notes" issued by the SIVs Whistlejacket Capital LLC and White Pine LLC, and said, "The Notes went into receivership in mid-February 2008, and are still in receivership. In June 2008, the receiver (Deloitte & Touche LLP) appointed a replacement investment manager and an investment bank to assist in restructuring the Notes and completing the insolvency proceeding. The likely timeframe for completion of the restructuring is unknown, but it is unlikely that it will be completed by February 28, 2009. In light of the approaching expiration of the Agreements, as well as the continued disruption of the credit markets generally, and the market for the Notes specifically, each Trust and NTC propose to amend the Agreements."
