Auction Rate Securities (ARS) were viewed as “cash equivalents” from the inception of the ARS market in 1984 until February 2008. And like other cash-equivalent securities, they were marked at par.
This made sense when frequent auctions (often every seven days) provided almost-instant liquidity to their holders. But since February 2008, auctions have been failing, leaving investors stuck with highly illiquid paper – sometimes with no maturity date – with a yield that's unrealistic, given the illiquidity of the securities.
Unless, or until, this situation reverses itself, reporting entities holding such paper have no other options but to set a “fair value” for the securities, which requires marking them at a discount from par. But how deep should this discount be?
Pluris has in-depth expertise valuing complex securities with limited or uncertain liquidity horizons. Because of our relationship with SecondMarket and our LiquiStat™ database, we have extensive information on the prices – and discounts – that buyers and sellers of ARSs are willing to trade at.