Under the CSAs, the asset manager will make up to an aggregate of $240 million in capital contributions to the funds if any of the funds realize a loss on the sale of or certain other events relating to certain Asset Backed Commercial Paper (ABCP) securities in the portfolios, according to the announcement. The CSAs will terminate in nine to twelve months.
“Legg Mason is putting the CSAs in place to support the same securities we have previously supported in other funds. The support provides the funds with flexibility to work through difficult markets as we seek to reduce the exposure in the funds,” said Mark R. Fetting, Legg Mason’s president and chief executive officer, in the announcement. “We are confident in the overall soundness of the Company’s money market funds and remain committed to providing our fund shareholders with principal stability, credit quality, and current income, although no guarantees can be given.”
The firm expects to incur an estimated $146 million non-cash charge in the quarter ended June 30, 2008 to its earnings ($90.1 million net of taxes, or $0.64 per diluted share), and expects to accrue an estimated non-cash charge to earnings of approximately $265.3 million, ($154.5 million net of adjustments to operating expenses and taxes, or $1.09 per diluted share) in the quarter ended June 30, 2008.
The statement said neither the funds nor their shareholders incurred a loss from these agreements.
A Reuters news report said the firm took a charge of $291 million, or $2.06 a share, for the quarter ended March 31 for bailing out the funds – its first-ever loss.