ADC Telecom Raises Estimate on Impact of Troubled Debt

In an 8-K filing with the SEC late Friday afternoon, ADC Telecommunications (ADCT) provided fresh evidence on the potential dangers to tech companies from the ongoing tribulations of the debt markets.

As ADC recalls in the filing, the company had previously announced a $29.4 million “other than temporary” impairment charge for a decrease in the fair-value of the company’s holdings of auction-rate securities as of the end of October. ADC also previously said it expected to take another $31 million charge for its fiscal first quarter ended February 1 based on information from the firms managing its investments; that was actually an increase from its first estimate of $20 milion. Now the company says that based on its latest account statements, it again has increased the estimated charge it will take for the first quarter to $50 million. The value of those securities, in short, has dropped to about $90.4 million at February 1 from $140.4 million on October 31.

There was a better explanation on what has been happening to ADC’s holdings of auction-rate paper in a filing in November. Here’s a key excerpt:

We hold a variety of highly rated interest bearing auction rate securities that most often represent interests in pools of either interest bearing loans or dividend yielding preferred shares. These auction rate securities provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, usually every 7, 28, 35 or 90 days. This mechanism allows existing investors either to rollover their holdings, whereby they would continue to own their respective interest in the auction rate security, or to gain immediate liquidity by selling such interests at par. For several months, certain of these auctions have not had sufficient bidders to allow investors to complete a sale, indicating that immediate liquidity at par is unavailable..

See what happens when you reach for yield?

ADC Friday rose 16 cents, to $13.82.