John Hancock Funds, the mutual fund arm of Boston's John Hancock Financial Services Inc., said it plans to restructure $1.6 billion of leverage used in closed-end funds hurt by the disruption in the auction-rate securities market.
John Hancock said a commercial bank will refinance five of the funds.
"At this time, we believe this is an effective and timely solution to the unprecedented illiquidity that has developed in the auction security market," John Hancock Financial CEO John DesPrez said in a statement. "The board and management continue to work diligently on finding a solution for our other two leveraged closed-end funds."
The financing will be used to redeem and replace 100 percent of the outstanding auction rate preferred securities (ARPS) of the five taxable equity funds, and to change the form of leverage from ARPS to debt. The five John Hancock closed-end funds affected by the announcement are: Tax-Advantaged Dividend Income (HTD), Preferred Income (HPI), Preferred Income II (HPF), Preferred Income III (HPS), and Patriot Premium Dividend II (PDT).
John Hancock Funds is evaluating alternatives to complete the refinancing of the remaining two leveraged closed-end funds: Investors Trust (JHI) and Income Securities Trust (JHS). These two closed-end bond funds have approximately $175 million of ARPS outstanding.
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