Monday, March 2, 2009

PIMCO Postpones Dividends; Three Funds Fail To Meet Asset Requirements

Bill Gross' recent foray into a shadow government role may be just in time to avoid the depression from spreading onto the green, green grass of the Newport Beach country club. News is out that three of PIMCO's closed-end funds have postponed dividend payments declared February 2 as they "failed to meet the ratio of assets to borrowings set by regulators." The three harbinger funds are Pimco Corporate Income Fund, Corporate Opportunity Fund and High Income Fund. Scheduled payments on these funds will not be made either today or April 2 PIMCO said in a statement today. This is not the first time the bond manager has gotten in dividend trouble: last December it was forced to suspend dividends on 6 of its closed-end funds.

U.S. Securities law prohibits dividend payments if debt funds do not meet certain criteria: funds issuing debt are required to maintain net assets of at least 300% of leverage, while those selling preferred shares must maintain a 200% ratio.

Curiously, the three PIMCO funds all closed trading last week at a premium with the High Income fund's share trading at a 56% premium to NAV. While not much additional disclosure is available at this point, for PIMCO to be in any sort of trouble, after being the main asset manager riding high on the LTM treasury wave, can only be a portent of bad things to come.
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maximus said...

I have heard from several sources that the Auction Rate Securities / Closed end funds issuing preferred stock strategy nightmare is far from over....

Perhaps it's about to enter round 2?

Searching for truth....