Biotech Values

[stuck_holder]

there are a lot of potentially hidden "time bombs" ticking in surprising places resulting from this subprime mortgage mess.

some more on auction rate securities...

"While the vast majority of the auction rate securities have long-term maturities, they began being treated as short-term investments by many corporations several years ago due to the fact they're ordinarily very liquid and can be sold off at monthly auctions. Most audit firms in late 2004 began advising corporate clients to classify their auction rate securities as short-term, as opposed to cash or cash equivalents. More on this in a moment.

The incentive for corporations to invest in auction rate securities is obvious - with tons of cash on their balance sheets, many corporate treasurers began looking for ways to increase the return on that cash. That's actually a prudent strategy... as long as the market for auction rate securities is functioning. But the issue here (one that the SEC even investigated a few years ago) is that the market, although large in nominal dollar volume, is quite thin, controlled often by one dealer. Under ordinary circumstances, if there are too few bids the dealer will prop up the market by entering to place a final "clearing" bid. That practice of "propping up" the market is what the SEC probed a few years ago.

As BMY explained in the conference call, some of the short-term securities they invested in were unable to be sold at auction and the sponsoring brokers refused to make a market in the securities, or in this case refused to "prop it up," exactly what many feared would happen if liquidity issues developed.

BMY maintains there will be no impact on overall financial flexibility going forward, but the company, like many many others still has a sizable auction rate securities portfolio. Unable to liquidate these "short-term securities" as needed, remember this is supposed to be a cash management tool, the company could be forced to take additional impairment charges if credit market conditions continue to deteriorate. The alternative to the impairment charges? Suddenly owning long-term debt with maturities of 20-30 years. In other words, a bad trade just became an investment."

http://www.minyanville.com/articles/index.php?a=15733