Does Five Star’s Settlement Make Its Earnings Any Prettier?

Five Star Quality Care, Inc. (NYSE Alternext US: FVE) recently announced that it has entered a settlement with UBS AG and its affiliates (“UBS”) regarding Five Star’s investments in auction rate securities made through UBS.  Under the terms of the settlement, UBS will purchase 100% of Five Star’s $74.8 million (face amount) of investments in student loan auction rate securities at par value (including accrued and unpaid interest, if any) at Five Star’s request anytime between June 30, 2010 and July 2, 2012.

A few weeks ago, Five Star released its earnings for the 3rd quarter and it was full of statements and adjustments related to its investments and their effect on their profitability.  The company attempted to show “this adjusted net loss per share from continuing operations is a meaningful disclosure that may help shareholders to better understand our results of operations for the three months ended September 30, 2008”.  It would appear that at the time of the earning release the company was in discussions for some kind of settlement on its auction rate securities.  Considering that the stock’s price has fallen over the past year from approximately 9.00 to 1.40, the settlement of the auction rate securities issue was probably baked into the cake.  We’ll see if their stock can recover further or will it be in the same boat as other senior housing stocks.

Five Star Quality Care, Inc. is a healthcare and senior living services provider that currently operates independent and assisted living facilities, skilled nursing facilities, rehabilitation hospitals, as well as institutional pharmacies and outpatient rehabilitation services clinics. Five Star is headquartered in Newton, MA.