MFS Investment Management considers tender option bond solution to refinance auction securities

By Cristal Cody

Springdale, Ark., June 9 - MFS Investment Management is checking into the use of tender option bonds to replace the outstanding auction preferred shares of the five MFS closed-end funds that have failed in recent auctions, according to a company statement.

Boston-based MFS Investment said the straightforward refinancing of auction preferred shares with bank debt financing is not desirable for tax-exempt funds. Tender option bonds are created by a fund depositing highly rated bonds in a trust.

MFS and other market participants are investigating whether auction preferred shares could be restructured to make them eligible for purchase by money market funds by including a liquidity feature, MFS said in the statement.

If the shares can be restructured, the money market funds could create a new source of demand that will allow refinancing of the auction preferred shares, MFS said.

The legal, tax, financial and accounting issues for restructuring the shares to make them money market eligible have not been resolved, but MFS plans to negotiate with financial institutions to provide liquidity facilities to support the restructuring.

MFS expects to release more information within the next 30 days.

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