Nuveen Investments, a leading global provider of investment services to institutions and high-net-worth investors, testified yesterday before the United States House Committee on Financial Services in a hearing to review problems and potential resolutions to the auction rate securities market challenge.
Nuveen’s Executive Vice President, Bill Adams, was among nine panelists testifying. Because Nuveen closed-end funds collectively are the largest issuer of Auction-Rate Preferred Securities (ARPS), Nuveen was invited to testify about the Nuveen funds’ approach to refinancing their outstanding ARPS as well as share its perspective on potential steps that legislative and regulatory bodies could take to help expedite a solution to the ARPS problem.
Adams testified that, to date, Nuveen’s closed-end funds have redeemed or have announced their intention to redeem nearly $5 billion of their $15 billion of outstanding ARPS. Further, Adams stated that an important factor in the redemption of Nuveen’s closed-end funds’ ARPS was the creation of Variable Rate Demand Preferred stock, or VRDP. VRDP is a new form of preferred stock that includes an unconditional put feature or liquidity backstop making it eligible for purchase by taxable and tax-exempt money market funds.
Adams also suggested three steps that could help resolve the ARPS issue more quickly:
- The Federal Reserve should broaden the ability of banks to own VRDP in their role as liquidity providers, and should permit banks serving as liquidity providers to pledge VRDP as collateral at the Fed window.
- The SEC should expedite and expand its consideration of relief under the Investment Company Act to temporarily permit closed-end funds to use debt financing to a greater extent than currently permitted.
- The Treasury Department should further clarify the equity treatment of preferred securities that include liquidity backstops, and permit not only fixed-income funds, but also equity funds, to issue such preferred securities.
The full text of Adams’ oral testimony as well as Nuveen’s full written testimony is available on Nuveen’s auction-rate preferred resource center at www.nuveen.com/arps.
Nuveen Investments provides high quality investment services designed to help secure the long-term goals of institutions and high net worth investors as well as the consultants and financial advisors who serve them. Nuveen Investments markets its growing range of specialized investment solutions under the high-quality brands of HydePark, NWQ, Nuveen, Rittenhouse, Santa Barbara, Symphony and Tradewinds. In total, the Company managed $152 billion of assets on June 30, 2008.