How do you compound the misery of having a crappy business and a collapsing stock price? Stick your company’s precious rainy-day fund in “cash-like” auction-rate securities.
Auction-rate securities, for those who haven’t been following the credit crunch, are muni bonds whose rates are frequently reset at auction. For a while, they did what they were designed to do–allowing towns and cities to borrow money at slightly lower rates and “cash” investors to earn slightly higher ones–and this led Wall Street to declare them safe. Alas, these days many auction-rate securities can’t be sold for love or money, which has left firms like Monster, Earthlink, Palm, and Intuit stuck with mountains of unsaleable paper.
Monster’s (MNST) in the worst shape, says the WSJ, with $357 million (about 60% of cash balance).
Intuit (INTU) has $328 million (about 20% of cash balance).
Palm (PALM) $75 million (about 15% of cash balance).
Earthlink (ELNK) $60 million (about 20% of cash balance).
Will these massive piles of “money” ever be saleable at their face value? Possibly. If the economy doesn’t melt down completely, the auction-rate market should eventually un-freeze, and the companies should be able to unload them. But at the very least we’re probably looking at write-downs.
More at the WSJ ($)