Auction-Rate Securities
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- Auction-Rate Securities
Overview
Uncertainty Abounds in Market for Auction-Rate Securities. What Recourse Do Investors Have?
Much to their chagrin, investors who purchased auction-rate securities — in the form of preferred shares in closed-end mutual funds, or corporate or municipal bond instruments — are discovering that these securities are hardly the safe, liquid, slightly higher-yielding, tax-exempt alternative to money-market funds that they were marketed as. Contrary to their expectations — based on what they were told at the time they invested in these products — investors are now learning that they cannot redeem them for cash on short notice, long notice or even any notice at all. Instead, they are finding — as we noted in our February 20, 2008 post — that the market for auction-rate securities has essentially collapsed and their funds are frozen. What had been sold to them as a “sure” and readily available source of cash is now anything but that.
Bond Market Faces Uncertain Future
Auction-rate securities (ARS), investments once considered as safe as cash, are the latest victim in the fallout of the subprime mortgage collapse. Auction-rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically — typically every seven, 14, 28 or 35 days — based on bids submitted through securities firms.
News Commentary
ARS Investors Were Misled By Wall Street, Says Lawyer
Auction-rate securities are municipal bonds, corporate bonds, or preferred stocks that have interest rates reset through auctions held every seven, 14, 28, or 35 days. When the auction market seized up in February 2008, the securities became illiquid, leaving investors holding what they thought was once a cash-like investment. To date, 24 class-action suits have been filed by investors against various Wall Street investment houses and brokerages. In a June 17 radio interview with June Grasso of Bloomberg, J. Boyd Page, senior partner at Page Perry LLC, discusses the basis for the lawsuits, beginning with the fact that even prior to the current auction-rate crisis, Wall Street inappropriately sold the securities to investors who were looking for money market-type investments.
Band-Aid Solutions Provide Little Comfort to Holders of Auction-Rate Debt
For more than two decades, auction-rate securities were quietly pitched to investors as a safe haven to park their cash and reap benefits of yields higher than those of traditional money-market funds. Then, in February, the bottom literally fell out of the auction-rate market.
Wall Street Secrets: The Failure of Auction-Rate Securities
Some things are better left unsaid. And apparently a few Wall Street investment banks took that sentiment to heart when it came to explaining the risks associated with auction-rate securities to clients.
Investor Angst Intensifies Over Auction-Rate Securities
As reported in a June 6 article by Darrell Preston on Bloomberg.com, dozens of investment banks - including Bank of America, UBS and Wachovia - that sold auction-rate securities apparently are now discouraging any efforts to create a secondary market. Their unwillingness to release the bonds, according to the article, is that they hope to “save” clients from taking any unnecessary losses on the securities - the same securities the banks initially pitched to customers as “cash-like” investments.
Student Lenders Caught in Auction-Rate Securities Trap
The allure of auction-rate securities - which attracted student-loan lenders on the promise of low short-term interest rates on long-term debt - has turned into a financial nightmare, costing student loan companies millions of dollars and placing many students in need of college loans out in the cold.
Auction-Rate Securities: Where To Go From Here
It's been a season of discontent for auction-rate securities, not to mention for thousands of individual investors stuck with the now-illiquid investments that brokers had told them were as good as cash.
Wall Street Banker Investigated For Jefferson County Debacle
More than any other U.S. municipality in recent memory, Jefferson County, Alabama, is living and breathing the consequences of complex bond deals gone bad. Now, one of the Wall Street bankers responsible for creating the high finance deal that has landed Jefferson County on the brink of bankruptcy is the target of a federal investigation for possible wrongdoing in the municipal bond market.
Proposed Rule Change Has Brokers Up In Arms
Auction-rate securities were supposed to be like cash equivalents for individual and institutional investors. For years, the auctions in which the securities were bought and sold operated with relatively few glitches. Auction failures were rare, because the investment banks and securities firms running them stepped in with their own capital to buy the bonds. Then, in 2008, it all came crashing down.
Auction-Rate Securities: Buyer Beware
Trust is like a vase - once it's broken, you can fix it, but it will never be the same again. For thousands of investors who were sold auction-rate securities as safe, cash-in-the-bank investments, nothing could be truer.
Probes Into Auction-Rate Securities Heats Up
As the number of investors who remain in limbo from the frozen auction-rate securities market continues to grow, state securities regulators have joined efforts to lend support.
Citigroup Sounds the Death Bell for the Auction-Rate Bond Market
The fate of auction-rate securities shows no signs of being resuscitated, according to an April 15 article by Martin Blaun on Bloomberg.com. After an unprecedented number of auction failures, investors abandoned the $330 billion market for variable-rate municipal securities in February. Having already taken on nearly $250 billion in credit losses and write-downs, investment banks and securities firms like Goldman Sachs, UBS and Merrill Lynch were no longer willing to support the auction market and abruptly stopped infusing their own capital to buy the securities.
Auction-Rate Market Shrinks By $51 Billion
Facing higher interest costs from failed auctions, municipal borrowers are taking flight from auction-rate securities and beginning the long process of refinancing their auction-rate debt.
Wall Street Needs to Do the Right Thing For Investors
Doing right by others can be a long and difficult process, which is exactly what more investors are learning about Wall Street every day. In the May issue of Smart Money magazine, James Stewart devotes his column, Commonsense, to his personal experiences with auction-rate securities.
Help Sought From Fed For Falling Student Loan Bond Prices
The slump in the financial markets that has affected homeowners and Wall Street may now deter students and families from pursuing their higher education goals.
Auction-Rate Securities: Where Do We Go Next?
Concerned by the auction-rate bond market's apparent descent into collapse, state officials are now taking measures to find out exactly why auctions have failed and how interest costs could soar as high as 20 percent for some borrowers.
Auction-Rate Bond Failures Create Exodus of Borrowers
The collapse of the auction-rate bond market has left municipal borrowers everywhere scrambling to take cover. By May 1, at least $21 billion of bonds are expected to be pulled out of the auction-rate market by municipal borrowers, according to a March 21 article by Jeremy Cooke on Bloomberg.com.
The Subprime Crisis Strikes Again Auction-Rate Bond Market Now Vulnerable
The credit crisis triggered by the collapse of the subprime mortgage market has claimed its latest victim: auction-rate securities. These complex debt instruments are long-term corporate or municipal bonds or preferred stock on which the interest rates are reset periodically, typically every seven, 28 or 35 days.
Publication Articles - our lawyers quoted
Structured auction rate notes create a trap for investors.
Posted: Wednesday, September 3, 2008
Arbitration Tilting More Against Investors: Jane Bryant Quinn
Posted: Monday, June 30, 2008
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