If there is no liquidity in the CEF ARPS auction markets, as Legg Mason today claimed (see link below), then I would assume the preferred shareholders would sue both the investment banks and CEFs for redemption.  While I understand that CEFs are legally bound to pay a greater rate if auction fails, is there a time limit when CEFs are legally bound to redeem the ARPS? 

I assume that a few potential sources of repayment would be: bank borrowings, substitute securities or liquidation of holdings.  It would seem all these options would be more expensive than paying the penalty rates?

It would also seem that unleveraged CEFs might be unfairly tainted by association.  Would it be a good "window of opportunity" to buy unleveraged CEFs?  Under what circumstances would one buy ARPS leveraged CEFs?

Thanks for your help, Eqinc   

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3641746.ece