Piper Jaffray Companies (NYSE: PJC) today announced that it has
determined its tender option bond (TOB) program no longer qualifies for
off-balance sheet accounting treatment, and has consolidated the assets
and liabilities of the program onto its balance sheet. The firm took
this action because current volatility in the credit markets have caused
a decline in the market value for municipal securities, such as those
held in the off-balance sheet TOB trusts, which increases the likelihood
that Piper Jaffray would make payment under its reimbursement obligation
to the third-party liquidity provider for the program. This
reimbursement constitutes material involvement in the trusts and
requires them to be consolidated onto the firm’s
balance sheet.
In addition, Piper Jaffray will discontinue the program as it believes
that the TOB trusts will not have long-term lives as originally
expected, for two reasons. First, in late September, the third-party
financial institution that acts as the liquidity provider for the TOB
trusts provided notice that it will exit this business in early 2009,
and an alternative liquidity provider is not available at economically
viable pricing. Second, due to the dislocation in the short-term credit
markets, the TOB trusts can no longer rely on selling variable rate
certificates at a rate below the long-term yield on the underlying
bonds, which allows the trusts to maintain tax-exempt status.
As a result, Piper Jaffray has consolidated $258.2 million of municipal
bonds held in off-balance trusts established under the TOB program onto
its balance sheet as assets as of Sept. 30, 2008. In addition, as of
Sept. 30, the company has consolidated onto its balance sheet $269.1
million in variable rate trust certificate liabilities sold to
institutional customers as part of the TOB program. In conjunction with
consolidating the TOB program off-balance sheet assets and liabilities
onto the firm’s balance sheet, the company
recorded a loss of $21.7 million in the third quarter consisting of a
$10.8 million realized loss related to a write-down of the residual of
the TOB program and a $10.9 million unrealized loss related to the
decline in the market value of the municipal bonds held in the TOB
trusts compared to the value of the variable rate trust certificates.
The Piper Jaffray TOB program securitizes highly rated, long term
municipal bonds in off-balance trusts, which are financed by the sale of
short-term variable rate certificates to institutional customers seeking
variable rate tax-free products.
Piper Jaffray will release its full financial results for the third
quarter of 2008 before the market opens on Oct. 15, 2008.
Conference Call
Andrew S. Duff, chairman and chief executive officer, and Debbra L.
Schoneman, chief financial officer, will host a conference call to
discuss the announcement on Tuesday, Oct. 7 at 5 p.m. ET (4 p.m. CT).
The call can be accessed via live audio webcast available through the
company’s Web site at www.piperjaffray.com
or by dialing (866) 244-9933, or (706) 758-0864 internationally, and
referring to conference ID 68042755 and the leader's name, Andrew Duff.
Callers should dial in at least 15 minutes early to receive
instructions. A replay of the conference call will be available
beginning at approximately 7 p.m. ET on Oct. 7, 2008 at the same Web
address or by calling (800) 642-1687, or (706) 645-9291 internationally.
About Piper Jaffray
Piper Jaffray Companies is a leading, international middle market
investment bank and institutional securities firm, serving the needs of
middle market corporations, private equity groups, public entities,
nonprofit clients and institutional investors. Founded in 1895, Piper
Jaffray provides a comprehensive set of products and services, including
equity and debt capital markets products; public finance services;
mergers and acquisitions advisory services; high-yield and structured
products; institutional equity and fixed-income sales and trading; and
equity and high-yield research. With headquarters in Minneapolis, Piper
Jaffray has 28 offices across the United States and international
locations in London, Shanghai and Hong Kong. Piper Jaffray & Co. is the
firm's principal operating subsidiary. (www.piperjaffray.com)
Cautionary Note Regarding Forward-Looking Statements
This press release and the conference call to discuss the contents of
this press release contain forward-looking statements. Statements that
are not historical or current facts, including statements about beliefs
and expectations, are forward-looking statements and are subject to
significant risks and uncertainties that are difficult to predict. These
forward-looking statements cover, among other things, statements made
about general economic and market conditions, the ability to divest
trading positions related to the tender option bond program, our
proprietary strategies with respect to our municipal inventory, our use
of derivative instruments to hedge risks and our off-balance sheet
arrangements, or other similar matters. These statements involve
inherent risks and uncertainties, both known and unknown, and important
factors could cause actual results to differ materially from those
anticipated or discussed in the forward-looking statements including (1)
market and economic conditions or developments may be unfavorable,
including in specific sectors in which we operate, and these conditions
or developments (including market fluctuations or volatility) may
adversely affect the environment for capital markets transactions and
activity and our business and profitability, (2) an inability to readily
divest or transfer inventory positions of certain municipal products may
result in future inventory levels that differ from management’s
expectations and potential financial losses from a decline in value of
illiquid positions, (3) concentration of risk increases the potential
for significant losses, and increases in capital commitments in
proprietary trading, investing and similar activities increase this
risk, (4) use of derivative instruments as part of our risk management
techniques may not effectively hedge the risks associated with
activities in certain of our businesses, (5) we enter into off-balance
sheet arrangements that may be required to be consolidated on our
financial statements based on future events outside our control,
including changes in complex accounting standards and (6) the other
factors described under “Risk Factors”
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2007 and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2007, and updated in our subsequent reports filed with the
SEC (available at our Web site at www.piperjaffray.com
and at the SEC Web site at www.sec.gov).
Forward-looking statements speak only as of the date they are made, and
readers are cautioned not to place undue reliance on them. We undertake
no obligation to update them in light of new information or future
events.
© 2008 Piper Jaffray & Co., 800 Nicollet
Mall, Suite 800, Minneapolis, Minnesota 55402-7020
Piper Jaffray Companies
Jennifer A. Olson-Goude, 612-303-6277
Investor
Relations
or
Rob Litt, 612-303-8266
Media Relations
