Auction Rate Securities Bite PPH

In 2006, PPH refinanced bonds, and issued new bonds. These bonds were auction rate securities having an interest rates determined by weekly auctions held by Citigroup. The ARS scheme was supposed to provide provide PPH with short-term interest rates for long-term bonds.

Instead, PPH's borrowing costs have doubled or even tripled! Further, PPH and Citigroup entered into an interest-rate swap derivative to partially protect from high interest rates, but since interest rates have dropped, PPH owes Citigroup money from the low interest rates!

Moodys has lowered PPH's outlook because of the exposure.
www.thecommunitypaper.com

"Extreme instability in that area ---- called auction rate securities ---- in the last five weeks has raised interest rates on about $180 million in debt that Palomar Pomerado is carrying from an average of 3.79 percent to as high as 10 percent."
NCTimes Moodys Article

I wonder if Citigroup informed the PPH Board that Citigroup was fined 1.5 million by the SEC in 2006 for violative practices in its auctions.
SEC Press Release