Let me throw something out here for you guys/gals to chew up: By my calculations PHK needs to get the ARPS amount down to $655.5M to get down to max leverage of 50%. $900M - $655.5M = $244.5M needs to be raised. 6/30/08 holdings show $281M in Fannie holdings w/ coupon rate of 5 - 5.5%. Presumably these were bought at a very good price before the feds took over the GSEs, and could be sold for above purchased value and I'm guessing that now with official government backing of these entities, the value would approach that required to approach the coupon yield. IF that was the case, then the loss in yield from the sale of some of these would be the coupon rate (5-5.5%) minus the ARPS rate (2 - 2.5%). Result is leverage in line (for now) and minimal reduction in overall fund yield - AND some Fannie stuff left over for future similar deployment. Viola' - sky not falling.
Assuming they still have the fannies. Also the default rate on the arps can go much higher. Without the 2/1 coverage they will lose the aaa rating and as the rating goes down the default rate goes up.[can go to 275% of commercial paper rate] Problem is they have an aversion to shrinking the fund as their excessive fees are based on total fund value. Good luck getting them to get something right!!