Local government pooled funds in Colorado and Florida run by Davidson Fixed Income Management were each reaffirmed as on credit watch with negative implications by Standard & Poor's.
The $744 million Colorado Surplus Asset Fund Trust and $155 million Florida Surplus Asset Fund Trust are both rated AAAm, the highest rating for money market funds.
The S&P designation stems from the two funds' investments in the Reserve Primary Fund, which faces fraud charges filed by the SEC on May 5 in connection with disclosure issues about its “vulnerability as Lehman Brothers Holdings Inc. sought bankruptcy protection,” S&P said in statements.
The pools were initially put on credit watch with negative implications by S&P on Feb. 27, an action reaffirmed Nov. 18.
The S&P designation is based on the “uncertainty surrounding the redemption share price” the pools expect to receive from their investments in the Reserve Primary Fund, the statements said. Reserve stated on Feb 26 “it would set aside $3.5 billion in a special reserve to cover potential damages and legal fees,” the S&P statements said.
The credit watch with negative implications “signifies that we could affirm or lower the rating pending the final (net asset value) payout to Reserve Primary Fund holders and the pools' ability to maintain a stable NAV,” the statements said.
The amount the pools have invested with the Reserve fund couldn't be learned. Chris Blackwood, Davidson portfolio manager and administrator for both the Florida and Colorado funds, couldn't be reached for comment.
The Davidson-run pools are privately sponsored competitors to the $5 billion Colorado Local Government Liquid Asset Trust and the $4.5 billion Florida PRIME local government pool, both sponsored by their respective states.