Cash Management

Latest to Be ARS-whipped: MetroPCS

Wireless service provider reports it has an $83-million unrealized Q4 loss on its auction rate securities.
Stephen TaubFebruary 27, 2008

MetroPCS Communications became the latest in the growing line of companies to take hits from their positions in auction rate securities.

The provider of wireless service said that in the fourth quarter, it recorded an $83 million unrealized loss on marketable securities relating to investments totaling $134 million in ARS. Including the $15 million writedown recorded during the 2007 third quarter, the remaining investment in marketable securities as of year-end totaled $36 million, it added.

The company said that the impairment charge does not materially impact the company’s liquidity or financial flexibility. It also asserted that, given its current cash and cash equivalents balance, the current lack of liquidity in the credit and capital markets will not have a material impact on the company’s liquidity, cash flow, financial flexibility, or its ability to fund operations, including its planned build-out of additional markets.

Last week we reported that SBA Communications took a $15.6 million impairment charge related to ARS, nearly doubling the company’s reported fourth-quarter loss. SBA, which operates wireless communications towers, reported a net loss of $28.9 million, or 27 cents a share. Had it not been for the impairment related to auction-rate securities, the company’s net loss per share would have been 13 cents.

In the fourth quarter, Bristol-Myers Squibb took an impairment charge of $275 million on ARS investments, partially consisting of subprime mortgages. The company said it had $811 million of principal invested in ARS at year-end. Its estimated market value, however, was $419 million, reflecting a $392 million adjustment to the principal value. The Bristol-Myers impairment charge reflects the portion of ARS holdings that the company has concluded have an “other-than-temporary decline in value,” it noted.

Also, Citigroup told the Associated Press that about $6 billion of mostly municipal debt auctions failed on one day alone. The financial services giant was the lead underwriter for most of those sales. The wire service also pointed out at the time that six other offerings failed prior to that one day.

Auction-rate securities have long been considered a safe and liquid investment, and many companies record them as cash equivalents on their balance sheets. But in recent months, investors have spurned auctions where the securities are sold, calling their liquidity and par value with the dollar into question.

Other companies taking hits from their ARS investments include 3M Co. And others, such as Foundry Networks Inc. and Texas Instruments, showed up in a Merrill Lynch report suggesting that many companies had vulnerability to the deteriorating position of what they considered cash-equivalents, although executives of Foundry Networks and Texas Instruments both were reported to have disagreed with that assessment.