UPDATE: Legg Tries To Sort Out Auction Rate Securities Mess
Together, Legg said the funds own about
Closed-end funds are different from their cousins, mutual funds, because they do not continuously offer shares for sale.
Legg (LM) shares fell 2%, to
When running smoothly, the
Closed-end funds, for their part, issued auction-rate preferred stock and used the proceeds to buy longer-term instruments for common shareholders. This use of leverage, or borrowed money, boosts the yield for common shares in these funds.
"Given the current interest rate environment, the funds' managers currently continue to believe that leverage is beneficial to the overall performance of the funds, even as we anticipate that the preferred auctions may continue to fail," Legg said in a press release.
The problem for issuers and their investors is that the door has recently shut on those investment auctions. Investors, skittish about the unraveling in other parts of the credit market, have sat them out.
The link between auction-rate securities and the disruptions in other parts of the credit market is a complicated one, but it all traces back to the surprise surge in mortgage defaults that started last year.
"At this time we cannot provide definitive timing for a resolution to this issue," Legg said.
(END) Dow Jones Newswires