News
Treasurer Lemoine Reports Fiscal Year 2008 Cash Pool earnings – Mainsail II status
July 30, 2008
(Augusta)- Accounting rules require a valuation snapshot (a "mark-to-market") for the State's cash pool investments as of close of business, June 30, 2008. The defaulted Mainsail II investment was marked-to-market on June 30, 2008, through Deutsche Bank and PFM, the new State's cash pool investment consultant, at $0.33 per $1.00 of par value. This was the approximate value of the investment should we have sold the investment that afternoon. It would have brought in about $6,643,435 in immediate cash with a $13,286,926 loss. The mark-to-market accounting snapshot becomes part of the Comprehensive Annual Financial Report (CAFR) for the State that is published around January.
The State's cash pool holdings for FY08 will simply show a Mainsail II asset worth $6,643,435 and an unrealized (possible) loss of $13,286,926 to the cash pool as a whole. Overall cash pool earnings for FY08 were about $26,166,878. Even with the marked write-down, the cash pool’s net investment return was approximately 2.00%.
This mark-to-market snapshot is one aspect of the interplay between accounting rules, an uncertain market outcome and an enforcement investigation by the Office of the Maine Attorney General that will determine the ultimate resolution of this matter. The AG continues his investigation into Merrill Lynch's sale of the Mainsail II investment to the State.
The market estimate confirms that the U.S. housing market and the worldwide credit markets continue to suffer, and that investors continue to shy away from mortgage-backed investments regardless of their underlying value. The arrival of a bear market on the equities exchanges, ongoing huge bank write-downs, relentless energy prices and inflation fears have stifled investor appetite for fixed-income instruments such as Mainsail II.
Going forward, a wind-down of Mainsail II assets is planned by the receivers and seems likely to occur this fall. That action will likely offer much more clarity on the investment's true market value. The results of the Attorney General's investigation also will bring clarity on the ultimate resolution of the matter as we go forward.
