To allay investor concerns following Orange County, Calif.'s bankruptcy filing, Putnam Investments will purchase $3.5 million of the county's short-term notes from one of its tax-exempt money market funds, the company said.
The notes are held by Putnam's $90 million Tax-Exempt Money Market Fund. The purchase will not result in a loss to the fund or its shareholders, Putnam said.
"Despite the fact that the price of the issue would not have reduced the fund's net asset value below $1, we decided to purchase the notes to avoid any possible concerns by our money market shareholders," Gary N. Coburn, chief of fixed income for Putnam Investments, said in a statement.
Coburn said the company decided to purchase the notes so investors would not continue to be concerned about fluctuations in the fund's net asset value because of the distressed securities. The purchase will also help the fund maintain its standards for high quality and conservative investments, he added.
Orange county, one of the nation's wealthiest suburbs, filed for protection under Chapter 9 of the federal bankruptcy code Tuesday following disclosures of about $1.5 billion in paper losses on its $20 billion pooled investment portfolio.
Putnam's mutual funds, which hold $15.3 billion in tax-exempt assets, own about $86 million of obligations issued by Orange County and agencies of the county, including the $3.5 million of notes that Putnam is buying from the money market fund. The notes are uninsured direct obligations of the county, the company said.
The notes, which are tax and revenue anticipation notes, were purchased as a new issue and mature July 19, 1995. Putnam will hold the notes in its corporate account until maturity, Coburn said.
Of the remaining Orange County obligations, $27 million are insured. Another $55 million are investment-grade revenue bonds issued by county agencies, and their ratings have not been changed by Standard & Poor's Corp., Putnam said.
Moody's Investors Service suspended its ratings on the securities following the bankruptcy filing.