DOW JONES NEWSWIRES
A trio of closed-end funds at Pacific Investment Management Co.
also won't make monthly dividend payments due in April because of
the falling value of auction-rate preferred shares.
Five Pimco funds late Friday said they wouldn't make their
payments due Monday as planned because closed-end funds can't
announce or distribute dividends if their auction-rate leverage is
more than 50% of total assets.
As a result, the giant money manager is being forced to buy back
some of the auction-rate preferred securities issued by its
closed-end funds. That is a reversal for Pimco, which had refused
to redeem these securities for months after the auction-rate market
froze up a year ago. But deteriorating markets and legal
requirements are forcing Pimco to do so after all.
The purchases will push the company's asset coverage of the
auction-rate preferreds back above the 200% level required for the
funds to pay dividends.
The Pimco funds announcing Monday they won't make an April
payment are the Corporate Income (PCN), Corporate Opportunity (PTY)
and High Income (PHK) funds. They intend to resume dividend
payments "as soon as possible."
Pimco's closed-end funds, like dozens of others, have for years
issued auction-rate preferreds to borrow money and add leverage to
the funds. Such securities are long-term debt with lower,
short-term rates that are set at periodic auctions.
When the auction-preferred market froze, auction-preferred
holders wanted their money back, so most closed-end fund shops
started redeeming some securities or worked on plans to do so. But
Pimco balked, pointing out that redeeming the preferreds would
reduce leverage in its funds, which in turn would shrink income for
closed-end fund shareholders. The firm's preference for its common
shareholders incensed brokers and preferred holders.
-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136;
kevin.kingsbury@dowjones.com and Shefali Anand, The Wall Street
Journal; shefali.anand@wsj.com
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