Holders Of Student Loan-Backed Auction Rate Securities Facing Endless Winter?
There’s a mighty cold wind blowing for those who own auction rate securities backed by student loans, Aaron Pressman of BusinessWeek online reported today in an article entitled "Auction-Rate Securities: Out of Luck." In sunnier times, auction rate securities (“ARS”) were pitched as higher-yielding alternatives to certificates of deposit and money market funds for short-term investors who needed safety and liquidity. In February, however, the market for ARS collapsed amid credit market turmoil when Wall Street firms that conducted the auctions failed to act as market makers. While some municipalities and closed-end fund issuers have redeemed or announced plans to redeem ARS they issued, holders of ARS backed by student loans are having no such luck. The key problem is that the authorities that issued student loan ARS have little or no ability to raise additional funds to redeem them. What’s more, the interest rates for many student loan-backed ARS have fallen to zero. What’s left for such ARS holders is the blood-freezing prospect of holding, in essence, a long-term bond paying little or no interest. “A lot of people are coming to the realization that there’s no light at the end of the tunnel for these,” the article quoted Cathy Gregg, a partner at corporate finance consulting firm Treasury Strategies in Chicago, as saying.
ARS were described recently on Forbes.com as “really, really bad investments.” That is particularly true of ARS backed by student loans. Most brokerage firms sold student loan ARS to risk averse, short-term investors as cash-equivalent investments with no disclosure of the risks of illiquidity. Page Perry, LLC is in the process of reviewing and filing claims on behalf of aggrieved investors in these ARS. If you sold student loan ARS at a loss, or have been unable to sell these securities, you may wish to consider your legal options, and Page Perry, LLC is available to assist you in doing so.
