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Auction Rate Securities
 3 Months Ended
Mar. 31, 2012
Auction Rate Securities [Abstract]  
Auction Rate Securities

5. Auction Rate Securities

Our ARS investments have failed to settle in auctions and are not liquid. In the event we need to access these funds prior to their maturity, we will not be able to do so without a loss of principal, unless redeemed by the issuers or a future auction on these investments is successful. During the three months ended March 31, 2012, $5.7 million of our ARS investments were redeemed at par. During the nine months ended March 31, 2012, $7.9 million of our ARS investments were redeemed at par or for a small discount from par. During the three and nine months ended March 31, 2011, $100,000 and $350,000, respectively, of our ARS investments were redeemed at par.

As there are currently no active markets for our various failed ARS investments, we have estimated the fair value as of March 31, 2012 using a trinomial discounted cash flow analysis. The analysis considered, among other factors, the following:

 

  •  

the collateral underlying the security investments;

 

  •  

the creditworthiness of the counterparty;

 

  •  

the timing of expected future cash flows;

 

  •  

the probability of a successful auction in a future period;

 

  •  

the underlying structure of each investment;

 

  •  

the present value of future principal and interest payments discounted at rates considered to reflect current market conditions;

 

  •  

a consideration of the probabilities of default, passing a future auction, or redemption at par for each period; and

 

  •  

estimates of the recovery rates in the event of default for each investment.

When possible, our failed ARS investments were compared to other observable market data or securities with similar characteristics. Our estimate of the fair value of our ARS investments could change materially from period to period based on future market conditions.

Contractual maturities for our ARS investments are generally greater than five years, with fair value of $9.5 million maturing from calendar years 2015 to 2017, $6.4 million maturing from calendar years 2040 to 2045, and $2.1 million having no stated maturity. Of our ARS investments, $11.1 million par value are investment grade, and the remaining $18.5 million par value are below investment grade.

 

The various types of ARS investments we held as of March 31, 2012, including the original cost basis, other-than-temporary impairment included in retained earnings, new cost basis, unrealized gain/(loss), and fair value, consisted of the following (in thousands):

 

                                         
          Other-than-                    
          temporary                    
    Original Cost     Impairment in     New Cost     Unrealized     Fair  
    Basis     Retained Earnings     Basis     Gain/(Loss)     Value  

Student loans

   $ 6,850     $ (179 )    $ 6,671     $ (233 )    $ 6,438  

Closed end municipal funds

     2,250       (18 )      2,232       (124 )      2,108  

Credit linked notes

     13,500       (8,765 )      4,735       2,935       7,670  

Preferred stock

     5,000       (5,000 )      —         —         —    

Municipals

     2,000       (83 )      1,917       (45 )      1,872  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total ARS

   $ 29,600     $ (14,045 )    $ 15,555     $ 2,533     $ 18,088  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

All of the ARS investments in the above table with unrealized losses have been in a continuous unrealized loss position for more than 12 months.

The various types of ARS investments we held as of June 30, 2011, including the original cost basis, other-than-temporary impairment included in retained earnings, new cost basis, unrealized gain/(loss), and fair value, consisted of the following (in thousands):

 

                                         
          Other-than-                    
          temporary                    
    Original Cost     Impairment in     New Cost     Unrealized     Fair  
    Basis     Retained Earnings     Basis     Gain/(Loss)     Value  

Student loans

   $ 9,150     $ (242 )    $ 8,908     $ (249 )    $ 8,659  

Closed end municipal funds

     7,850       (54 )      7,796       (467 )      7,329  

Credit linked notes

     13,500       (8,765 )      4,735       3,291       8,026  

Preferred stock

     5,000       (5,000 )      —         —         —    

Municipals

     2,000       (83 )      1,917       (55 )      1,862  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total ARS

   $ 37,500     $ (14,144 )    $ 23,356     $ 2,520     $ 25,876  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

All of the ARS investments in the above table with unrealized losses have been in a continuous unrealized loss position for more than 12 months.

We have accounted for all of our ARS investments as non-current (included in non-current investments in the accompanying condensed consolidated balance sheets) as we are not able to reasonably determine when the ARS markets will recover or be restructured. Based on our ability to access our cash, our expected operating cash flows, and our other sources of cash, we have the intent and ability to hold these investments until the value recovers or the investments mature. Subsequent to recording other-than-temporary impairment charges, certain of our ARS investments have increased in value above their new cost bases, and this increase is included as unrealized gain above and in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets.