The collapse of the auction-rate bond
market is costing stockholders of companies from Google Inc. to
Royal Depository Financial Institution of Canada more than $1.8 billion in investment
, proprietor of the most popular Internet hunt engine,
reported on May 12 that it lost $10.8 million on $259.6 million
it had invested in the bonds, marking down the debt by about 4
percent. , that country's biggest lender,
told stockholders on May 14 that the value of its investments
fell by $185 million.
More than 300 companies are struggling to value auction-
rate chemical bonds after traders battered by subprime-related losses
abandoned the $330 billion marketplace in February, said , main executive director military officer of New York-based Restricted
Stock Partners, which runs the biggest trading system for
the securities. About one-half the companies reported losses
totaling $1.8 billion as the marketplace for the securities, sold as
higher-yielding alternates to money markets, seized up.
''We've seen a existent acceleration in the figure of companies
announcing they throw them, and also a greater part of them
taking writedowns,'' Silbert said.
Companies owned $98 billion of the securities on Jan. 1,
according to A study by Treasury Strategies Inc., a Chicago-
based house that counsels financial officers on managing their cash. Treasurers bought the chemical bonds instead of money-market funds and
U.S. authorities bills, expecting to gain about 0.25 percentage
point in further yield, the Association for Financial
Professionals said in a last year.
on the chemical bonds and preferable shares sold by municipal
governments, student-loan organisations and common fund
companies are determined by command every seven, 28 or 35 days. If demand is insufficient, the auction bridge neglects and some holders
are left with securities they wanted to sell. The issuer gets
stuck with a punishment charge per unit as high as 20 percent. In some cases,
the charge per unit can temporarily drop to zero.
The marketplace collapsed three calendar months ago when investors soured
on the securities because of concerns about the creditworthiness
of chemical bond insurance companies championship the debt. As demand waned, traders that
supported the marketplace for 20 old age suddenly stopped acting as
buyers of last resort. About 98 percentage of the student-loan and
closed-end fund auction bridges and 48 percentage of the municipal bids
failed last week, information compiled by Bloomberg show.
, the world's biggest package-
delivery company, said in a May 9 filing with the U.S.
Securities and Exchange Committee that it wrote down the value
of $383 million invested in auction-rate chemical bonds by $33 million.
''As A consequence of the relentless failing auctions, and the
uncertainty of when these securities could be successfully
liquidated at par, we have got reclassified all our investings in
auction-rate securities to non-current in demand securities,''
the Atlanta-based company said.
''This is an unprecedented situation,'' said ,
a managing manager at the Association for Financial
Professionals, a 16,000-member trade grouping in Bethesda,
Maryland. ''There's not been A default but there's a complete
loss of liquidity.''
While Google's auction-rate securities ''are primarily
student loans which are substantially guaranteed by the U.S.
government,'' they ''do not have got a readily determinable value
and are not liquid,'' the Mountain View, California-based
company said in second .
'High Recognition Quality'
The securities are of ''very high recognition quality,'' , a Google spokesman, said in an e-mail, adding that
they ''represent a little per centum of our overall portfolio.''
Hill-Rom Holdings of Batesville, Hoosier State recorded an
''unrealized loss'' of $1.5 million on its balance sheet and
said it believes it will convert its $48.6 million in auction-
rate securities into hard cash within the adjacent 12 months. Companies
don't have got to book the loss in their income statement if the
writedown is considered temporary, according to Espen Robak,
president of Pluris Evaluation Advisors LLC in New York.
, the biggest U.S. infirmary chain, said in a May 12
filing with the second that the ''best estimation of just value'' for
the $661 million in auction-rate securities it throws was at par,
or 100 cents on the dollar, because the implicit in credit
quality of the chemical bonds is unchanged and anticipates they will be
Municipal borrowers, which do up about one-half the market,
are replacing at least $68 billion of auction-rate chemical bonds by July
7, according to information compiled by Bloomberg. Mutual monetary fund firms
redeemed $3.8 billion in so-called auction-rate preferred
securities and announced programs to pay off another $16 billion.
stockholders may weave up with several
hundred million dollars of writedowns on auction bridge securities,
Chief Executive Military Officer said last hebdomad at a
conference in New House Of York sponsored by UBS AG.
held $4.6 billion of auction-rate debt
as of Jan. 31, most from pupil lenders, according to Beja
Rodeck, a spokeswoman for the Toronto-based company.
, the world's biggest
maker of generic drugs, said May 6 it was taking a $55 million
charge for its auction-rate securities, which totaled $334
million as of March 31. said Jan. 31
that it booked an unfulfilled pretax loss of $142 million on $811
million. The New York-based drugmaker's treasurer, ,
was subsequently replaced.
Near the End?
., a Tampa, Florida-based steelmaker,
posted a $22.7 million first-quarter complaint on $105 million of
''We would trust this marketplace gets to have got some more
liquidity and that this would be the end of it,'' ,
the company's head fiscal officer, said on a May 12
The marketplace is so toxic that companies are going out of
their manner to state investors when they don't ain auction-rate
''The company makes not have got any auction-rate securities in
its investing portfolio,'' Seattle-based
said in a March 25 second filing.
To reach the newsman on this story:
in Hub Of The Universe at
in New House Of York at