Tuesday, April 01, 2008

Nuveen to Refinance ARS

The headline of the Wall Street Journal article sounded great: "Nuveen to Refinance ARS", but what the headline did not say is the main story. Bloomberg had a similar headline: "Nuveen Funds Finance Auction-Rate Securities Buy-Back." To be clear: Nuveen is not refinancing all of its outstanding ARS funds (at this time.) As the story tells us, Nuveen is refinancing a mere $714 million of auction-rate securities in four taxable closed-end funds, but that does not offer any direct relief to their investors for the lion share of the billions of dollars of Nuveen ARS shares outstanding, in particular the non-taxable funds.

Nonetheless, this is still very good news and indicative of the attention that managers everywhere will be exerting to unwind the entire ARS market.

It may take months or even a year or more, but the likelihood is that virtually the entire ARS market will be refinanced. If you simply leave your ARS shares alone and go about your life, the odds are that eventually you will get back every dime of principal plus a decent rate of return (for a "cash" fund) as well. It really is okay to sleep at night.

-- Jack Krupansky


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