Thursday, August 21, 2008

Auction Rate Securities - Merrill Lynch Settles and Agree to Buyout Investors Starting in October 2008

Merrill Lynch & Co. reached a settlement with the Massachusetts Secretary of the Commonwealth to provide clients beginning in October with access to billions of dollars in funds that have been frozen in the market.

The announcement comes nearly a week after Merrill had indicated it would begin buying back about $10 billion in auction-rate holdings from individual, or retail, investors for one year starting Jan. 15.

A Merrill Lynch spokesman declined comment on the Massachusetts announcement.

Merrill's retail clients hold about $12 billion in auction-rate securities, but the firm had expected that number to drop to less than $10 billion by January as a result of expected issuer redemptions. "We have been discussing this issue with New York and other regulators" and "we thought we were making progress," the company said last week.

Under the deal announced Thursday, Merrill will buy back all illiquid auction-rate securities at par starting Oct. 15 from its retail customers who have less than $3 million on deposit. Merill also agreed repurchase, on or after Jan. 15, all illiquidied auction-rate securities at par from all other clients with deposits of $100 million or less.

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