Commonwealth Secretary William F. Galvin last week sent a letter to nine different investment firms seeking disclosure information about closed-end funds that have experienced problems in the auction-rate market.
Galvin sent the letter to Eaton Vance Managed Investments, Evergreen Investment Management Co., Allianz Global Investors, John Hancock Advisers LLC, MFS Investment Management, Nuveen Asset Management, Pioneer Investment Management Inc., BlackRock Financial Management Inc., and Calamos Financial Services LLC.
The letter, which seeks responses by March 7, asks the companies to provide details about failed auction-rate securities deals and how they plan to address the problem. The department also wants to know how asset managers are informing investors of recent ARS issues.
Closed-end funds borrow money by selling auction-rate debt. Auction-rate deals fail when the long-term bonds do not attract enough buyers to match the number of sellers trying to get out of the investments. Issuers, which tend to be government entities or closed-end funds, are then forced to pay higher penalty interest rates to the investors holding the bonds. In the past, broker-dealers on such transactions purchased the unsold bonds, but many banks do not have the funds to clear-out auction-rate sales.
“The failures in these auctions cause many and diverse problems,” Galvin said in a press release. “But the impact on closed-end municipal bond funds can be daunting for the investor who has sought a safe and dependable harbor for life savings.”
