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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Letters of credit (L/Cs) are being employed by large investment firms struggling to make their money market funds appear safe amidst the current turmoil in the credit markets.
Measures to make funds seem safe and secure have already cost firms millions of US dollars, a price that could climb if credit market problems worsen.
L/C security
SEI Investments, Legg Mason and Sun Trust Banks are amongst the fund operators to have secured L/Cs to prop up the value of funds they operate.
Legg Mason said recently it had pumped US$100 million into a money market fund to support its liquidity and had procured US$238 million in L/Cs to support the credit ratings of two other money market funds.
Statement
"We entered into arrangements with a large bank to provide L/Cs for an aggregate amount of approximately US$238 million for the benefit of two liquidity funds," says a Legg Mason statement.
"As part of the L/C arrangements, we agreed to reimburse to the bank any amounts that may be drawn on the L/Cs and, to support this agreement, we provided approximately US$178 million in cash collateral, which will be increased to the full amount of the L/Cs by December," the statement adds.
Other measures
In other moves, Bank of America said it would provide as much as US$600 million to prop up several funds that bought large amounts of debt that is now worth less than the price the bank paid.
Credit Suisse said it had booked about US$125 million in unrealised losses in preparation for losses related to debt obligations it has bought.
This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.