WASHINGTON - Municipal issuers holding swap contracts and hundreds of millions worth of guaranteed-investment contracts with American International Group Inc. are safe and not likely to loose their investments, sources said yesterday, while other municipalities worried what would happen to AIG's large muni holdings.

AIG's credit downgrade from triple-A to the single-A range has triggered provisions in the interest-rate swaps and other derivative contracts held by many municipalities that require the insurance firm to post additional collateral. Issuers said they are beginning to discuss AIG's contractual options and whether a derivative needs to be unwound.

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