ARS Exodus Continues

More Colorado issuers are seeking to escape their suddenly higher interest rates amid the collapsed auction-rate securities market.

Fourteen issuers in the state have seen their interest costs rise a combined $103 million annually, compared to the rates they were paying in October, officials said. There is an estimated $4 billion of auction-rate debt in the state.

Poudre Valley Health System in Fort Collins saw debt service costs rise $140,000 weekly on its $215 million of auction-rate debt. Denver International Airport, Children’s Hospital, the CollegeInvest student loan program, and the E-470 Authority toll road operator are among the hardest hit by the crisis, according to local news reports.

The Colorado School of Mines, a state university in Golden, has converted its auction-rate bonds, and DIA is refinancing about $750 million. The E-470 Authority converted $422.1 million of fixed-rate debt to auction-rate securities last June and has seen rates soar from 3.5% in October to 11.95% last month. The reset rates would cost the toll authority $24.43 million in additional annual interest costs if it were to remain in the ARS market. E-470 is tapping a rainy-day fund to cover the higher interest costs.

Another major public health provider, Memorial Health System in Colorado Springs, saw two failed bond auctions in mid-February that raised rates from the 3% range to the maximum 12%. Memorial Health sold about $272 million of auction-rate securities in 2002 and 2004 for hospital expansion. Although the hospital’s rates dropped to between 9% and 6.5% in recent days as some bidders returned to the market, Memorial is working with a new financial adviser to refinance the debt.

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