Capital Markets

Legg Mason’s Leg Up on the Liquidity Crisis

The investment firm seeks an "ample" cushion to support its money funds.
Stephen TaubMay 6, 2008

Legg Mason Inc. said it plans to sell $1 billion worth of a special kind of equity, mainly to provide an “ample” cushion to support its money funds, noted CEO Mark Fetting in a conference call on Tuesday. Although credit spreads were improving and the company has reduced its exposure to liquidity problems, it is “wise … in this environment” to have ample capital available as an “extra margin of safety” to support the company’s money funds, noted Fetting.

If Legg Mason does not use the capital in that manner, Fetting said they also will consider using it to fund acquisitions or to support growth in existing businesses.

Regarding the equity offer, Legg Mason officials elaborated that it will sell 20 million equity units, each with a stated amount of $50. The equity units will initially consist of a contract to purchase Legg Mason common stock and a 5 percent beneficial ownership interest in a senior note, due June 30, 2021. The principal amount of the note is $1,000. Under the purchase contract, holders are required to purchase Legg Mason common stock no later than on June 30, 2011.

Citi Global Markets Inc., Merrill Lynch & Co., Goldman, Sachs & Co., and J.P. Morgan Securities Inc. are the joint bookrunners for the offering. Citi Global Markets Inc. and Merrill Lynch & Co. are global coordinators and structuring agents.

Legg Mason also reported a net loss of $255.5 million for its fourth fiscal quarter ended March 31. The loss is a result of two non-cash charges: Its previously announced support for money market funds, totaling $291 million after tax and compensation related adjustments; and an after-tax charge of $94.8 million for a reduction in the value of acquired management contracts held by a wealth management subsidiary.