Variable-rate crisis continues: George Washington University, Rapides among issuers looking to fix

By Cristal Cody and Sheri Kasprzak

New York, Feb. 25 - The auction-rate crunch is causing more and more issuers to jump ship and convert, refund or restructure their variable-rate bonds.

George Washington University is one of the latest issuers looking for a fixed rate in a market where variable-rate bonds are not faring well because of skyrocketing interest rates.

"If you look at the long-term perspective, people have a choice in investing in our paper and we want to make sure that we've been an institution that provides liquidity; we want to make sure that the offerings we do have don't cause investors to hold [their bonds] longer than they have to," said a source familiar with the deal who wished to remain anonymous.

The university is planning to reoffer $186.6 million in 2002A and 2002B variable-rate bonds going forward. No date has been sat currently for the conversion, but the university is reportedly in talks with Lehman Brothers on what terms are acceptable.

The university, the source said, started looking into converting these particular bonds since December in an effort to get "ahead of the curve."

The 2002A and B bonds are due in 2032 and MBIA is the insurer for the reoffer.

This week, several issuers either postponed their variable-rate offerings or made moves to convert or refund their outstanding auction-rate bonds.

On Monday, Rapides Finance Authority in Louisiana announced plans to remarket its $60 million in revenue bonds for conversion to a term rate.

The bonds, due 2037, have the option for conversion to a daily, weekly, commercial paper or auction period rate, according to a preliminary official statement. The bonds were first issued in November 2007 for Cleco Power LLC.

Goldman, Sachs & Co. is the remarketing agent.

Remarketing activity abounds

Also out for remarketing their existing auction-rate bonds was the University System of New Hampshire, which will remarket $24.35 million series 2006A bonds on March 26 and $60.05 million series 2006B-1 bonds on March 28.

The bonds (Aaa/AAA) are insured by Ambac Assurance Corp., according to a preliminary official statement released Friday. The bonds have maturities from 2009 through 2036.

Series 2006A bonds will be remarketed in a term rate period through March 25, 2009. Series 2006B-1 bonds will be reoffered in a term rate period through March 27, 2009.

Lehman Brothers is the remarketing agent for the 2006A bonds, and JPMorgan is the remarketing agent for the series 2006B-1 bonds.

Tampa Electric Co. also announced Monday that it plans to purchase and refinance all of its $286.8 million tax-exempt auction rate bonds on March 26, an interest payment date.

The Hillsborough County and Polk County Industrial Development Authorities issued the bonds for the Florida-based utility.

The company said it will purchase in lieu of redemption the $75 million series 2007 Polk County Industrial Development solid waste disposal revenue refunding bonds; and the $125.8 million series 2007A, 2007B and 2007C Hillsborough County pollution control revenue refunding bonds.

Tampa Electric also plans to convert $85.95 million series 2006 Hillsborough County pollution control revenue refunding bonds on March 19 to a fixed-rate mode.

The company said in a statement that it does not plan to cancel the bonds upon purchase. Other alternatives, including amending the bonds and reselling them in a fixed interest rate mode, are being considered.

Other auction-rate bonds to convert

BJC Health System said last week it will convert, refund or restructure $243.575 million in auction-rate securities. Those bonds were issued from July 2006 to December 2007 at interest rates from 3% on Dec. 14 to 4.5% on Dec. 28.

The corporation has not presently experienced any failed auctions, BJC noted in a statement, but noted that auction rates have increased dramatically recently.

The corporation said it plans to convert or restructure the bonds from an auction rate mode to another type of interest rate mode or else refund the bonds. The changes are expected before May 15.

The University of Pittsburgh Medical Center has also been offering to buy its multiple series of bonds at auctions in a move to stabilize interest rates.

The medical center said the auction-rate bond crisis prompted it to offer to purchase some of its bonds from investors at 100.01% of par on any date up until March 19.

El Paso bond sale postponed

Market conditions also gave pause to El Paso, Texas. The city moved ahead with the sale of $56.655 million general obligation bonds but delayed the pricing of $21.425 million refunding bonds, the issuer told Prospect News on Monday.

"The pricing wasn't quite working on it," said Bill Studer, city manager for El Paso.

"The market was kind of skittish, and the savings just weren't there."

The $56.655 million series 2008 bonds (AA/AA-) were sold Thursday in a negotiated sale managed by Banc of America Securities.

The bonds were insured by FSA and have serial maturities from 2010 to 2033.

Proceeds from the 2008A bonds would be used to refund part of the city's outstanding debt and the proceeds from the 2008 bonds are for improvements to the city's park, zoo, library and history museum, streets, fire, police and public facilities.

Monday pricings

Pricings were slow Monday, with Spring Branch Independent School District leading the day with an offering of $194.6 million bonds. The district sold the series 2008 bonds (Aaa/AAA) with a 4.928% true interest cost.

Merrill Lynch & Co. won the bidding in the competitive sale.

The district priced the bonds with coupons from 5% to 5.25% with yields from 2.2% in 2009 to 5.01% in 2038.

The bonds have serial maturities from 2009 through 2031 and term bonds due 2034 and 2038.

Proceeds will be used to acquire sites for schools, purchase buses, equip buildings and upgrade technology.

Puerto Rico prices $4.3 billion in bonds

Elsewhere, Puerto Rico priced Monday $4.3 billion in pension fund bonds (Baa3/BBB-).

The full terms of the bonds, according to a source familiar with the deal, were not immediately available. The bonds were still being priced late Monday afternoon, the source said.

The proceeds from the 50-year bonds will be used to aid a dramatic pension fund deficit the commonwealth has been facing for the last several years.

Puerto Rico was in the news with a new set of offerings on Monday. The commonwealth's aqueduct and sewer authority announced plans to sell $1,609 billion in bonds, a preliminary official statement said Monday. The exact pricing date could not be determined, but will occur in March.

The deal includes series A and B revenue refunding bonds and series A and B senior lien revenue bonds (Baa3/BBB-/BBB-).

The bonds will be sold on a negotiated basis through lead agents Citigroup Global Markets and Morgan Stanley.

Proceeds from the series 2008A and series 2008A revenue refunding bonds will be used to refund the authority's series 1995 refunding bonds. The series A and B senior lien bonds will be used to repay bond anticipation notes, lines of credit, to fund a portion of the authority's capital improvement program and make a deposit into the debt service fund.

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