Pluris ARS Holders Survey

Each quarter Pluris Valuation Advisors publishes a survey for holders of auction rate securities. The ARS Holders Survey has been compiled through searches of public filings in the public record as of September 30, 2009. This primarily includes 10-Qs filed for the second quarter by calendar year companies. For the majority of the holders in this survey, the data includes their holdings as of various dates in late 2008 and late 2009 and the accounting treatment of the holdings. Given the special circumstances of underwriters and brokers of ARS, firms within the financial sector have been excluded from our survey.

In total, Pluris found 430 holders of ARS, with the holdings having a total par value of $21 billion. The survey found that 395 firms had adjusted down the value of these investments, while 35 firms still account for their ARS holdings at par value. The aggregate impairment amount for the 395 firms with impaired holdings totals $4.2 billion, and includes both temporary and other-than-temporary impairments.

The observed discounts from par varied significantly: discounts ranged from 68% to 100% for companies making the most aggressive adjustments. Alternatively, approximately 8% of the companies surveyed did not take any discounts at all. Holders of student loan auction rate securities were found to be more likely to discount their holdings than holders of other types of auction rate securities.

The data indicates that illiquidity in the auction rate securities market has impacted the majority of the firms holding these short term investments which once had characteristics of cash. Although many firms have already realized the impact of the failure of the ARS market, other companies are continuing to delay taking impairments on their portfolio, while analyzing the landscape of the market and the subsequent impact on valuation. This delayed effect can often be attributed to the disconnect between liquidity and security value. Many investors might think of impairment as something that primarily results from deterioration in credit quality – an increase in default risk – and would not intuitively associate a reduction in liquidity with a drop in value.

As mentioned above, a small number of companies continue to value auction rate securities at par. However, the majority of firms in our survey are adjusting the value (i.e., taking an impairment) to reflect continued illiquidity in the market. Overall, however, the average discount from par has decreased from 26% in the three months ended in June, 2009 to 22% in the three months ended in September, 2009.