Fitch Puts Fund Fee Debt Instruments on Watch

September 28, 2001, 1:00 a.m. EDT 1 Min Read

Fitch, an international financial rating agency, has placed its two mutual fund fee securitizations on Rating Watch Negative because of market uncertainty following the Sept. 11 attacks, the company announced today.

The securitzations finance debt that is structured off of mutual fund 12b-1 fees and contingent deferred sales charges (CDSC), and therefore largely dependent on the funds net asset values. The two banks that offer the instruments rated by Fitch, Putnam Lovell Securities and Constellation Financial Management Co., have purchased receivables from a large number of mutual fund companies and sold them as structured debt instruments to institutional investors, such as pension funds and insurance companies.

"This action is being taken due to the increased uncertainty of the future fees generated by equity and bond mutual funds after significant mutual fund net asset value (NAV) declines following the tragic events of Sept. 11.," according to a company statement. "Even prior to Sept. 11, performance of these transactions had been below expectations as a result of earlier market value declines in mutual fund NAVs."

Fitch had already been watching most securitizations that were created in 2000 because of the market peak then, said Richard Hrvatin, an analyst with the firm. "The recent attacks, however, have driven the firm to put all of its outstanding mutual fund fee deals on watch and perform extra analysis on them," he said.