AUSTIN - The current credit market puts a premium on participants' flexibility and requires issuers to consider all their options, Austin Treasurer Art Alfaro told attendees at Wednesday's opening session of The Bond Buyer's 13th Annual Texas Finance Public Conference.

"I don't have to tell you this is a challenging market for municipal bonds," Alfaro said. "Investors are focusing on the underlying credit of issuers, and we're seeing an outflow from the hedge funds and investment banks at the same time we're dealing with a $60 billion backlog of bonds from local governments that badly need the money."

The news is not all bad, according to Alfaro.

"With every challenge there are opportunities," he said. "Marketing is essential in a period of day-to-day volatility. Get your preliminary official statement out early, and make sure the rating agencies' reports are out several days before taking debt to market."

Austin prefers competitive sales to negotiated, the treasurer said, but opted for a negotiated sale of $175 million of water and sewer revenue bonds earlier this year due to market conditions.

City officials proposed a bond sale of $100 million, later raising the size to $175 million on signs of an improving market. The term was cut from the original 30 years to 20 years to attract more retail customers, Alfaro said, with coupons sprinkled throughout the maturities rather than concentrating them in the first 10 years.

After the past 18 months, I have to contemplate the worst-case scenarios. in December to obtain a more favorable interest rate, he said.

As a result of the changes, the city received $452 million in orders for its $175 million bond issue, with $252 million in orders from the retail side.

"With things changing day to day, there is a huge benefit for being nimble in this market," Alfaro said.

Austin currently has a policy of relying on competitive deals for new money, but its treasurer said he may ask the City Council to change that policy.

"I think we'll see more and more negotiated deals," Alfaro said. "That is the way to go in this environment. We decided early in this process to take advantage of advantages of a negotiated deal, and it proved out."

Alfaro said his recommendation for more flexibility does not extend to variable-rate debt, at least for the foreseeable future.

"We are unwilling to take a chance on variable-rate debt," he said. "At this point I am not even looking at anything other than traditional fixed-rate debt. After the past 18 months, I have to contemplate the worst-case scenarios."

The recent market debacle will surely result in increased governmental oversight, said panel chairman Robert Estrada, chairman of Estrada Hinojosa & Co.

"This is a changing world, and the sure thing you can count on is more regulation," he said. "I believe we'll see a move to a single entity that will regulate the entire securities industry."

"That makes a lot of sense in some ways," Estrada said. "We'll all be participating in providing feedback to regulators and legislative leaders making those decisions. But oversight must not punish those firms that were not part of the financial meltdown."

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