Post-acute provider Five Star Quality Care, Newton, Mass., is the latest company to feel the pressure of soaring interest rates on auction-rate securitiesbut as an investor, not as an insurer. The provider of skilled-nursing, independent-living and senior-living facilities said it has invested about $75.4 million in auction-rate securitiesmost of which are issued by companies that operate student loan programssince 2006. In the past, the company has had the option to liquidate its investment in auction-rate securities whenever the rate for those securities is set, which is typically every 35 days. But recently, the interest-rate auctions for about $17.2 million of those securities have failed to close.
As a result of the failed auctions, the interest payable to Five Star on these securities has increased, but Five Star has not had the option to liquidate these investments for cash, the company said in a news release. At this time, Five Star is unable to predict the outcome of any future auctions for the auction-rate securities it owns. Five Star said all of the auction-rate securities were rated AAA by at least one nationally recognized rating agency when the company purchased the securities, and that it has not learned of any downgrades.
Five Star owns, leases and operates 169 senior-living facilities in 29 states. It also operates six institutional pharmacies and two rehabilitation hospitals. (For more on auction-rate securities, see this weeks Modern Healthcare cover story.) -- by Jessica Zigmond
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