ABCP freeze up and subprime meltdown looks ready to hit the $1 Money Market Funds.
Legg Mason just had to add $338M to keep money market funds at par.
http://www.bloomberg.com/apps/news?pid=20601087&sid=apyVlhHSg7TM&refer=home
Legg Mason Gives $100 Million, Credit to Money Funds (Update2)
By Christopher Condon and Miles Weiss
Nov. 12 (Bloomberg) -- Legg Mason Inc., the second-largest publicly traded U.S. mutual-fund company, propped up three money-market funds as a cushion against potential losses on commercial paper linked to subprime mortgages.
The Baltimore-based company invested $100 million in one of its money funds in October and arranged $238 million in credit to support two others this month, according to a Nov. 9 filing with the U.S. Securities and Exchange Commission.
Legg Mason holds $10.7 billion in debt issued by structured investment vehicles, or SIVs, representing 6 percent of its $167 billion in money-market assets. Credit-rating companies told Legg Mason to bolster the liquidity of the funds to maintain their AAA/Aaa ratings, spokeswoman Mary Athridge said.
``It's a no-brainer: You either prop up your fund with $100 million to solve the problem or watch your multibillion-dollar franchise go down the drain,'' said Peter Crane, founder of Crane Data LLC, the Westborough, Massachusetts-based publisher of the Money Fund Intelligence Newsletter.
SIVs borrow money by selling short-term commercial paper and medium-term notes and buying higher-yielding assets such as financial company debt and mortgage-backed bonds. Investors began shunning the debt in August on concern they may hold assets linked to U.S. subprime mortgages. Those loans, made to the riskiest borrowers, have been defaulting at record rates.
`No Guarantees'
Money-market funds, considered to be among the safest investments, are required to hold debt with top ratings that matures in 13 months or less. Money-market funds never allow their share price to rise above or fall under $1.
``The investments have not affected the $1 per share net asset value of the funds and Legg Mason does not expect that they will, although no guarantees are given,'' the company said in the filing.
