At least they sold 10mm of the toxic in the Q. At least they are still getting interest on it. After a quick reading of the balance sheet it looks like .75 per share of other stuff and 1.80 per share of auction rate securities. So in effect one is paying about 1/3 for the toxic and getting maybe an effective 15% yield on them.
Obviously the risk is in Ambac. I wouldn't be surprised if Riley etc. are hedging that out.
On a minor note: TSEM got smoked and they are down a further million or so since year end. They sold about 18% of their total position in the q.
They did not sell any of the trust securities in the quarter. The Q says no auctions have occurred through the end of December and they would have recorded a loss on the sale. They did sell some Tower shares. Based on the income for the quarter I get a 7.3% annualized interest rate on all securities and cash. So they are getting something less than 15% though better than treasuries. There are ways to hedge both shorting Ambac stock or the DEBs (AKT) which I think (not sure) are senior to the preferred. If you short you will be paying dividends and probably a hard to borrow fee. The $800 mm of contingent capital is not that much versus the potential liabilities at Ambac so if Ambac goes south (i.e. BK) all of their securities are likely to go to zero. Which is why AKT trades at a 41% discount to the $25 par value (9.9% yield). They should have written these securities down to market which is what ADCT, CIEN and just today PRCP have done. If they did, I would be looking at getting long again. Just don't want to be in front of that disclosure. Also opens them up to shareholder lawsuit if the trust securities don't come back.