Student loan crisis proving costly to Plug Power

PHOTOGRAPHER: James Schlett

Fuel-cell maker Plug Power has become ensnared in the student loan crisis with almost half of its investment portfolio tied up in bonds investors are wary to touch.

With $62.9 million in funds stuck in auction rate securities backed by federally-guaranteed student loans, Plug Power in Latham is suing its New Jersey investment advisor, which allegedly made those investments in January. A month later, the $300 billion auction rate securities market collapsed, leaving investors with few and painful options to turn their securities into cash for operations and payments.

Plug Power filed a lawsuit Thursday in U.S. District Court in Albany against UBS Financial Services, the Weehawken, N.J., firm that has served as the company’s financial advisor since 2005. Plug Power alleges UBS broke its fiduciary duties by investing in securities it was not authorized to invest in, namely auction rate securities with interest rate caps.

“Specifically, UBS knowingly supplied false information with regard to the liquidity of the ARS in which Plug Power’s assets were invested. UBS stated that the ARS were virtually equivalent to money market investments or cash,” the suit states.

Auction rate securities are backed by student loans, municipal bonds, preferred stock or collateralized debt obligations. Their interest rates reset at weekly or monthly auctions. With many of those rates undergoing stark increases, brokers have been finding fewer buyers for auction rate securities, resulting in auction failures.

UBS and Plug Power representatives did not immediately return calls today. It is not known whether Plug Power’s investment problems are affecting its operations in Latham and beyond.