Wednesday, May 21, 2008

Nuveen finds a way out

Investment firms such as Nuveen that offer leveraged Muni Closed End Funds have been suffering an inordinate amount of stress over the past few months. The auctions of preferred securities issued by the companys' municipal closed-end funds continues to fail; leaving most of the firms in a situation where they need to either forced to redeem their preferreds or make other financing arrangements.

Earlier HingeFire articles outlined the issues in the market (see Auction Rate Stress Continues: Muni Bond Funds Impacted and Revisiting: Muni Bond Fund shorts).

Nuveen has obtained a commitment of up to $1.75 Billion to refinance the struggling auction rate preferred securities. This enables the company issue variable-rate demand-preferred instruments to replace the current ARPS. This effectively alleviates the pain be endured by Nuveen and places the firm’s Closed End Fund (CEF) products back into a liquid situation. The company has also taken steps to remarket the new shares with another financial firm.

These measures are excellent news for the holders of the Nuveen muni CEFs – most whom are common investors looking for tax-free income with minimal risk.

Nuveen gets infusion for auction rate securities