Auction Rate Securities (ARS) Evaluation


Decision Analytics, which has provided investment accounting for corporate funds since 1991, has recently expanded its services to include ARS evaluation.

Many companies holding illiquid ARS are currently facing or will soon face challenges from auditors concerning the value of these securities. Auditors are almost universally demanding that investors discount their fair value under accounting standard SFAS 157. But are the valuations they are requiring correct? Probably not.

Currently many in the marketplace are offering valuation services. The models they use are typically static and involve applying accepted formulas to securities, depending on their type and class. While we can be creative in our application of models, this is not where we add value.

ARS refers to different securities that have only one thing in common: the use of a Dutch auction to reset their floating rate coupons. Other than this reset mechanism, there is very little similarity from one category of ARS to another. Even within categories, each security is subject to different collateral and may employ a different structure with regard to hierarchy, investor rights, and the unique markets in which it trades. All of these variables can result in substantially different cash flows, market conditions, and expectations of recovery.

Our philosophy is that all of these differences affect valuation. Without proper evaluation you cannot obtain a correct valuation.

Decision Analytics has the longest experience of anyone in the ARS industry, dating back to April, 1984, when the first auction rate security was sold. We know how to evaluate your securities. We can be your advocate to help ensure that you get an accurate valuation. In some cases we may even be able to put you in touch with potential buyers or lenders.

Please contact us for more information or use our free diagnostic tool.