Nuveen faces $15-bil. liquidity crisis in auction-rate products

Crain's Chicago Business reports:

Nuveen Investments Inc. is working to liquefy $15 billion of preferred auction-rate securities issued by 100 of its closed-end funds.

The market for the preferred securities, which were sold to individual investors as a higher-yielding alternative to money market funds, has been frozen for weeks as broker-dealers have ceased to conduct the auctions that determine the securities’ rate of interest.

The Chicago-based closed-end-fund manager said that it is also working hard to explain to investors why they may have to wait months to receive cash for their securities as a solution is hammered out.

Nuveen said that it has held three conference calls with anxious financial advisers since February and is handling about 1,000 phone calls a day to keep them apprised of the liquidity crisis, according to Anne Kritzmire, a managing director of the firm and head of its closed-end-fund business.


“People are losing sleep here, too,” she said.

The preferred-auction-rate problem has become a massive headache for Nuveen and BlackRock of New York, the two giants in closed-end municipal bond funds, said Cecilia Gordon, executive vice president of Thomas J. Herzfeld Advisors of Miami, which follows closed-end funds.

“This (mode of leverage) worked so well for so long that it became the favored way for municipal bond funds to leverage themselves,” she said.