State Sells Holdings in Student Loan Auction Rate Securities

News Release from Office of the Governor Mar 4, 2013

HONOLULU – Gov. Neil Abercrombie today announced that the State of Hawaii and Citigroup Global Capital Markets, Inc. (CGMI) agreed to have CGMI purchase all of the state’s approximately $231 million remaining balance of the Student Loan Auction Rate Securities (Securities) at full face value.

The state purchased the Securities from CGMI back in February 2008. The market for purchasing and selling these Securities subsequently collapsed as a result of the global financial crisis, thereby limiting the state’s ability to sell the Securities at full face value.

Fortunately, the state sufficiently adjusted its investment portfolio and avoided having to sell the Securities for cash flow purposes during this period. In November 2010, the state and CGMI entered into a settlement agreement that required CGMI to purchase all outstanding amounts held by the state on June 2015. At that time, the state held approximately $869 million of these Securities. Since then, the Abercrombie Administration and CGMI have been actively reducing portions of the holding, ensuring that no loss of principal occurs. This balance represents the last holdings of the Securities as well as the largest portion to be settled.

“By working with CGMI, the State of Hawaii was able to sell, without incurring any loss, all of the Securities in an accelerated manner ahead of the originally agreed upon June 2015 date,” said Gov. Abercrombie.

When the state purchased the Securities, they were rated “AAA,” which is the highest investment rating. While the state held the Securities, the state received all of the principal and interest payments due on the Securities.

“Our collaborative efforts with CGMI resulted in the state resolving this issue much earlier than provided in the settlement agreement,” said Finance Director Kalbert Young. “While this does not result in any additional new money to the state, it does allow us to strategically invest these funds to meet future obligations.”

Public Finance Managing Director and Co-Head Frank Chin said: “Citigroup is pleased to have worked closely with the Abercrombie Administration in the removal of all the auction rate securities from the state’s portfolio well ahead of the agreement schedule. We are proud of our longstanding relationship with, and commitment to, the state and are pleased to see this issue resolved.”

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