Duff & Phelps Investment Management Co. Provides Information on Preferred Share Auctions
20 2월 2008 - 7:46AM
Business Wire
Duff & Phelps Investment Management Co. today commented on the
disruptions in the short-term fixed income market that have
resulted in recent failures in the periodic auction or remarketing
of certain series of preferred stock issued by many closed-end
funds, including the three closed-end funds advised by Duff &
Phelps: DNP Select Income Fund Inc. (NYSE: DNP), DTF Tax-Free
Income, Inc. (NYSE: DTF) and Duff & Phelps Utility and
Corporate Bond Trust, Inc. (NYSE: DUC). Duff & Phelps believes
that the auction and remarketing failures that have occurred with
respect to the preferred shares of its closed-end funds are related
to general quality and liquidity concerns in the credit markets,
and not to any problems with the creditworthiness of the Duff &
Phelps closed-end funds or their preferred shares. The preferred
shares of all three Duff & Phelps funds are currently rated Aaa
by Moody�s and AAA by Standard & Poor�s, as they have been
since they were first issued. In addition, the assets that support
the preferred shares are primarily stocks and bonds of electric,
gas, and communications companies and currently have no direct
mortgage exposure. All three funds are in compliance with the asset
coverage tests under the Investment Company Act of 1940, which
requires each of the funds, as a condition of being able to pay
dividends to its common shareholders, to maintain assets equal to
at least 200% of the liquidation preference of its preferred stock.
An auction fails when there are insufficient clearing bids to
purchase all the shares that current holders wish to sell in an
auction, and a remarketing fails when the remarketing agent is
unable to set a dividend rate that will clear the market of all the
shares that current holders wish to sell in a remarketing. A failed
auction or remarketing is not an event of default of the issuer and
does not impair the issuer�s ability to pay timely dividends to
preferred shareholders or to repay the principal amount of the
preferred shares when required to do so by the terms of the shares.
A failed auction or remarketing means that the current holders
retain their shares until the next periodic auction or remarketing,
and the dividend rate for the next dividend period is automatically
set to the maximum dividend rate permitted by each fund�s charter.
It is possible that future auctions or remarketings will also fail,
and therefore holders of preferred shares may not be able to obtain
liquidity from the auction or remarketing process at all. Some
broker-dealer auction or remarketing desks may try to facilitate
secondary market trades apart from the auction or remarketing
process. Such a secondary market, if it does materialize, may not
provide preferred shareholders with the degree of liquidity or
share value they desire. One implication of the auction and
remarketing failures for common shareholders of Duff & Phelps
closed-end funds is that the cost of financing a fund�s leverage
likely will be higher than it would have been if those costs were
determined through a successful auction or remarketing process.
This means that common share earnings likely will be marginally
lower than the earnings the common shares would have otherwise
earned. At the present time, the earnings on the funds� assets
continue to exceed the dividend rates on the preferred shares based
on the funds� maximum applicable rates and, therefore, the
preferred stock leverage remains beneficial to the common
shareholders of the funds. However, there is no assurance that this
will continue to be the case in the future. If any of the funds
were to determine that its current leverage structure was no longer
beneficial to the common shareholders, it could modify or eliminate
that leverage structure. It is possible that eliminating a fund�s
leverage could negatively impact the income-generating capacity of
the fund. Duff & Phelps will continue to monitor conditions in
the closed-end fund preferred stock market, in furtherance of its
fiduciary duty to act in the best interests of the shareholders of
the Duff & Phelps funds. Duff & Phelps Utility &
Corporate Bond Trust, Inc. is a diversified, closed-end management
investment company. The Fund�s objective is to provide high current
income. The Fund invests primarily in a diversified portfolio of
utility income securities, corporate income securities,
mortgage-backed securities, corporate income securities,
mortgage-backed securities, and asset-backed securities. For more
information, visit the investment company�s website at
www.phoenixinvestments.com or call the Fund at (800) 338-8214.
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