What We’ve All Learned From The Auction Rate Debacle

I understand that not all recipients of our monthly newsletter would have been affected by the meltdown of the auction rate securities market; however, the structure of the recent broker-dealer/SEC settlements may pique the interest of many corporate treasurers. Of specific interest to us is the manner in which institutional investors have been largely left out of the settlement process. Most of the settlements contain clauses that effectively exclude or delay ARS purchases for so called “institutional investors” that hold more than $10 million in ARS. You can read more about the details of these settlements in this month’s Research Spotlight article to the left.

The fact of the matter is that institutions whose balance sheets may be suffering due to this defunct market have been dealt yet another blow. First, they were placed into these suspect securities which subsequently failed; now, they’re forced to take a back seat in the settlement process as others regain their liquidity.

While this entire process has been one long and particularly painful lesson for all involved, it has served to bring to the forefront the critical nature of cash investing. Where cash investments were once almost an afterthought, we’re now seeing an increased diligence by boards and CFOs in the cash manager vetting process – and rightly so. Strong credit research departments and solid track records are becoming more powerful differentiators in the decision making process. And, in this new environment, we expect that many companies, even those unaffected by the ARS debacle, will continue to adopt new behaviors and criteria when determining who will be responsible for the care of their cash in the future.

Best Regards,

Ben Campbell
President & CEO