Auction rate Securities hurt Tech Companies

The $330 billion market for the securities -- long-term instruments with rates that reset frequently at auction -- has seized up, making it difficult for holders to convert them to cash. Dallas telecom company MetroPCS Communications Inc. recently took an $83 million charge related to auction-rate securities, the arcane debt instruments -- once thought to be as safe as cash -- that are now nearly impossible to sell in today's jittery markets. in MetroPCS 10-k 2007, auction rate securiteis are disclosed under short investments The Company holds investments of $133.9 million in certain auction rate securities some of which are secured by collateralized debt obligations with a portion of the underlying collateral being mortgage securities or related to mortgage securities. Consistent with the Company’s investment policy guidelines, the auction rate securities investments held by the Company all had AAA credit ratings at the time of purchase. With the liquidity issues experienced in global credit and capital markets, the auction rate securities held by the Company at December 31, 2007 have experienced multiple failed auctions as the amount of securities submitted for sale in the auctions has exceeded the amount of purchase orders. In addition, three auction rate securities held by the Company have been placed on credit watch. However, as of January 31, 2008, all of the auction rate securities held by the Company still retain a AAA/Aaa rating as reported by Standard and Poors and Moody’s Investors Service. The estimated market value of the Company’s auction rate security holdings at December 31, 2007 was approximately $36.1 million, which reflects a $97.8 million adjustment to the principal value of $133.9 million. Although the auction rate securities continue to pay interest according to their stated terms, based on statements received from the Company’s broker and an analysis of other-than-temporary impairment factors, the Company has recorded an impairment charge of $97.8 million during the year ended December 31, 2007, reflecting the portion of auction rate security holdings that the Company has concluded have an other-than-temporary decline in value.