Anthony Carfang, Partner, spoke about dealing with auction-rate securities in this turbulent market during a webinar hosted by the Financial Leadership Exchange. Click here to listen to the event.


Treasury Strategies has created an auction-rate securities community on the Linkedin web-based networking service.  Our objective is to facilitate networking among finance and treasury professionals who have an interest in the auction-rate securities market. Click here the logo below to join.

Auction-rate securities (ARS) and auction-rate preferreds are actually four different types of instruments. Each category exhibits different characteristics that are important for a CFO to understand in order to develop a proper strategy. There are ARS backed by
1) Municipalities
2) Student loans
3) Closed end mutual funds
4) Other asset backed securities including CDOs

The Treasury Strategies valuation and consultative approaches have four main planks; credit quality of the ARS, liquidity of the ARS, scenario- based modeling and staying power of the investor.

Credit Quality - The assessment of credit quality considers the issuer's credit along with the existence and quality of insurance, guarantees or credit enhancement.

Liquidity - The liquidity assessment considers the probability and likely timing of an investor being able to cash out at par. These factors include the possibility of successful auction, issuer refunding or self-bidding, relief provided by the underwriter or distributor, and the outcome of litigation or regulation.

Scenario-based Modeling - The quantitative modeling of credit and liquidity outcomes against future interest rate scenarios allow us to determine specific valuation for each security in the portfolio.

Staying Power - The staying power assessment looks at the ability of the investor to ride out the storm and avoid a distress sale. Factors include the investors operating cash flow as well as other capital commitments.

FAS 157 has created urgency on the part of corporate treasurers. This new rule nicknamed, “Fair Value,” requires corporations to value these securities at market or at a market proxy for financial reporting purposes. Given that most auctions are failed, there is no market - That, of course, is the challenge.

For more information on auction-rate securities, to schedule an ARS valuation, or to contact Treasury Strategies regarding your liquidity and portfolio needs please click here.