Selling an Auction Rate Security

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I have $25K worth of an auction rate security (54471RCF2) from 2008 currently offering 0.46% auction rate and continuously failing in auction, which means, I cannot get rid of it. My question is, is there any way and how I can get rid of this, even at a loss? You can see auction results here: https://www.wellsfargoadvisors.com/auctionrates/index.htm

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City of LA metro debt, huh? I'd take it off your hands, but I don't think you'd like the price.

not sure how you purchased it, but back then in 2008 mines were purchases through Citi and it was a nightmare when the auction market failed. Mines got cashed out at full value in 2009 when the big banks settled failing to disclose the risks to retail customers.

recklessmax said:   not sure how you purchased it, but back then in 2008 mines were purchases through Citi and it was a nightmare when the auction market failed. Mines got cashed out at full value in 2009 when the big banks settled failing to disclose the risks to retail customers.
I bought them un-solicitated through Fidelity Investments (online purchase and not through a broker).

Somebody needs a money manager.

I thought when an ARS auction fails the interest rate resets to some maximum rate. How can a failed auction result in a 0.46% rate ?

BitemeIamtoxic said:   Somebody needs a money manager.

Are you crapping on OP or do you have a suggestion?



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ananthar said:   I thought when an ARS auction fails the interest rate resets to some maximum rate. How can a failed auction result in a 0.46% rate ?
Different securities had different terms. In many cases the failure (and maximum) rate was a floating rate based off of LIBOR or a similar index, often with a premium or multiplier applied, sometimes varying by the issue's rating.

A maximum rate of, say, two times 1-month LIBOR sounded reasonable when that meant 10%. Now that it means 0.42%, it sounds awful. That's the reason the auctions are failing - a bid is effectively an offer to buy at face value at below-market interest rates.

When did you buy the ARS? When did you transfer them from Fidelity to Wells?

Didn't this help?

ThePessimist said:   ananthar said:   I thought when an ARS auction fails the interest rate resets to some maximum rate. How can a failed auction result in a 0.46% rate ?
Different securities had different terms. In many cases the failure (and maximum) rate was a floating rate based off of LIBOR or a similar index, often with a premium or multiplier applied, sometimes varying by the issue's rating.

A maximum rate of, say, two times 1-month LIBOR sounded reasonable when that meant 10%. Now that it means 0.42%, it sounds awful. That's the reason the auctions are failing - a bid is effectively an offer to buy at face value at below-market interest rates.


So even though almost every other LIBOR based adjustable loan rate is structured as LIBOR + X% these ARS issuers structured the penalty rate (for failed auctions) as LIBOR * X ? That makes absolutely no sense since the risk premium for a loan should not go down when interest rates go down.

Donate it to your favorite charity if you have a high passive income to take the passive losss against.

Claymore said:   Donate it to your favorite charity if you have a high passive income to take the passive losss against.
Isn't the ARS just a type of muni debt, not some pass through investment entity? Where do the passive loss limits come into play? I found a lot of good discussion of charitable donations of complicated securities here:

http://www.nycommunitytrust.org/ProfessionalTaxEstatePlanningNot...

germanpope said:   archived thread

clue#1: the screen-names are AugustFour and BrunoB --- could be the same person

clue#2: same cusip number on an auction rate security that needs to be dumped (the only one discussed in FW)

umm, perhaps these aren't the same person --- but if they aren't, that is one pretty weird coincidence

what say you Bruno?

ananthar said:   So even though almost every other LIBOR based adjustable loan rate is structured as LIBOR + X% these ARS issuers structured the penalty rate (for failed auctions) as LIBOR * X ? That makes absolutely no sense since the risk premium for a loan should not go down when interest rates go down.
I agree with you that it makes no sense, but among muni ARSs that I've seen, by far the most common maximum rate applied in failed auctions is 1 month LIBOR times 2.

This issue was a common and popular purchase among investors (as ARS was extensively discussed in the aforementioned thread). I did not read (or pay enough attention to) the Official Statement for the specifics of rates and the consequences.

DogFase said:   When did you buy the ARS? When did you transfer them from Fidelity to Wells?

Didn't this help?

Securities had to be purchased before Feb. 2008. I did not qualify.



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