UBS AG was accused by New Hampshire securities regulators of failing to inform a nonprofit student-loan corporation that the auction-rate market where the agency raised $1.5 billion was on the verge of collapse.
Regulators in Concord allege UBS was moving to withdraw its support for the long-term debt with rates reset through periodic bidding, even as the Zurich-based bank encouraged New Hampshire Higher Education Loan Corp. to extend its commitment to the market and entice buyers by raising limits on interest rates.
New Hampshire's regulatory action is the first to focus on the plight of borrowers who depended on selling auction-rate debt to raise funding. They were hit by rising costs after the market froze in mid-February when dealers stopped buying unwanted securities at auction. UBS and other banks this month agreed in other settlements to buy back holdings from individual investors.
Federal and state regulators are probing the sale of auction-rate bonds across the securities industry after the $330 billion market seized up six months ago, leaving holders unable to sell investments pitched to them as cash equivalents and sending debt costs soaring for some issuers.
Settlements with UBS and New York-based Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley have focused on remedying small investors' inability to sell, with more limited provisions for institutional buyers and issuers. Besides student-loan companies, state and local governments as well as closed-end mutual funds used the auction-rate market to borrow.
UBS underwrote about $25 billion of the roughly $80 billion student-loan-backed debt subject to periodic auctions, "more than any other broker-dealer on Wall Street,'' according to the staff petition for relief released yesterday by the New Hampshire Bureau of Securities Regulation.
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