The Dormitory Authority of the State of New York approved $501 million of tax-exempt bond issuance at its monthly board meeting on Wednesday.

The largest approval was for $409 million of bonds to be sold through the state's school district revenue bond financing program. Under the program, multiple school districts sell bonds through DASNY for new money and to fix-out bond anticipation notes. The bonds can be sold in multiple series.

The program started in 2002, when DASNY issued $1.01 billion on behalf of schools, according to Thomson Reuters. Then issuance slowed down - from 2003 through 2007, the authority issued an average of $42 million of bonds per year through the program. Many more school districts have used it this year, with DASNY selling $141.2 million of bonds so far.

School building aid is in part determined by how much interest a district pays on its debt. If the district borrows on its own, the state Education Department assigns an assumed interest rate in its aid formula that was 3.875% for projects approved in fiscal 2007. If a district borrows through DASNY, the rate is based on actual interest costs.

"When rates were more favorable to the districts, it made sense for them to issue on their own, but as rates have gone up the districts benefit from DASNY's rates," said Ben Maslona, financial adviser at Fiscal Advisors & Marketing Inc. "The availability is there to use it every quarter if necessary, but because the open market has been favorable for so long it hasn't been used a whole lot until recently,"

The debt is a general obligation of the school districts that place a bond with DASNY. An intercept provision adds security to the bonds. In the event a school district defaulted, the state comptroller would intercept state education aid and direct it to bondholders before a default would occur on the DASNY bonds.

The DASNY board Wednesday also approved $35 million of 30-year variable-rate bonds on behalf of D'Youville College in Buffalo. The college plans to use $20 million of proceeds to construct a new building and the remainder to refund outstanding debt.

KeyBanc Capital Markets Inc. will underwrite the bonds. Hiscock & Barclay LLP is bond counsel. The bonds will have a direct-pay letter of credit from Key Bank NA for a five-year term with an option to extend it by one year. The college may also use a standby letter of credit from Federal Home Loan Bank of Cincinnati for one year due to current market volatility.

In addition, Catholic Health System Inc. Obligated Group in Buffalo plans to use the proceeds of $32 million of variable-rate bonds to renovate and expand the emergency department at Mercy Hospital of Buffalo. The obligated group comprises Catholic Health System and four hospitals.

Depfa First Albany Securities LLC will lead manage the sale of a single series of 25-year bonds. Harris Beach PLLC is bond counsel. HSBC will provide a direct pay letter of credit for five years.

Finally, the Brooklyn Law School plans to refund auction-rate securities issued in 2003 using up to $25 million of fixed-rate bonds. The law school's ARS failed at auction in February and March while there was widespread disruption in the auction-rate market, and were resetting in the high 6% range until September when it spiked to 9.43%.

The school announced this month that it intended to begin bidding on its auctions. JPMorgan will underwrite the deal. Squire Sanders & Dempsey LLP is bond counsel.

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