DOW JONES NEWSWIRES
Bank of New York Mellon Corp.'s (NYSE:BK) (BK) giant asset management unit, Dreyfus Corp., is still weighing its options on how to deal with the tax-exempt auction rate preferred shares of its closed-end funds.
Dreyfus hasn't committed to a course of action months after the market for the shares seized up in February, leaving its customers in the lurch. But while it will likely follow peers in redeeming some of the shares through tender option bonds - similar to a plan recently put in place by BlackRock Inc. (NYSE:BLK) (BLK) - it believes bonds don't represent a "comprehensive solution."
"Other options may provide potentially better alternatives," Dreyfus added.
Money invested in auction-rate securities have been all but frozen since regularly scheduled auctions broke down as flustered investors fled complicated financial assets. The situation has been further complicated by the tax-exempt status of the shares, which are tied to various municipal bonds - loans to cities and other public entities usually to support infrastructure projects.
Dreyfus is also considering redeeming the bonds by getting a commitment from a buyer firm "at a reasonable cost." But the viability of such a scheme would depend on willing buyers, which are currently in very short supply.
"Any potential structure would be subject to significant execution risk and would be dependent on economic and market factors beyond Dreyfus' and the funds' control," the company said of the idea.
Meanwhile, closed-end funds have about $64 billion in auction-rate preferred shares outstanding, according to investment firm Thomas J. Herzfeld Advisors Inc. Earlier this month, BlackRock (NYSE:BLK) set a redemption date on $1.6 billion of shares in its portfolio - only a fifth of its holdings.
Closed-end funds, a cousin of regular mutual funds, issue preferred shares that act like short-term debt, with their dividend rates - in theory - reset at auctions held by Wall Street dealers every seven to 90 days.
-By Andrew Edwards, Dow Jones Newswires; 201-938-5973; Andrew.Edwards@ dowjones.com
(END) Dow Jones Newswires 06-19-08 1509 Copyright (c) 2008 Dow Jones & Company, Inc.
