DASNY Approves Restructuring of $3.19 Billion of ARS, VR Debt

The Dormitory Authority of the State of New York approved the restructuring of $3.19 billion of auction-rate and variable-rate debt into other modes on behalf of 12 borrowers at its monthly board meeting yesterday.

The largest conversion will be $1.04 billion of auction-rate securities sold on behalf of the City University of New York. The ARS were sold in 11 subseries in 2003 and one series in 2005. The securities will be converted into variable- or fixed-rate bonds and may be enhanced or carry a liquidity facility.

Since mid-February, most of the auctions have failed, causing a maximum reset rate of more than 6% to kick in. For example, one series insured by Financial Guaranty Insurance Co. spiked from 4.25% to 6.24% after an auction failed on February 15th. The CUNY ARS were insured by several insurers that recently received downgrades. Most of the bonds will be refunded but three series totalling $292 million that were insured by Financial Security Assurance Inc., which was not downgraded, may be converted to variable-rate demand bonds without being refunded. Nixon Peabody LLP is bond counsel.

DASNY also approved the refunding and conversion of $520 million of fixed-rate and MBIA Insurance Corp.-insured ARS sold in 1998 and 2001 on behalf of the New York City Health and Hospitals Corp. into fixed-rate bonds. Morgan Stanley and Lehman Brothers will lead manage the sale and Orrick, Herrington & Sutcliffe LLP is bond counsel.

The Culinary Institute of America, which saw interest rates rise on its DASNY-issued ARS from the 3% to 4% range in January to 14% when one auction failed in February, plans to convert $56.8 million of XL Capital Assurance Inc.-insured securities to variable-rate demand bonds augmented by a direct-pay letter of credit.

Teachers College plans to keep its MBIA insurance when it converts its $46 million of ARS into fixed rate. The college saw its securities reset from 3.5% at the beginning of the year to as high as 15% when auctions failed this month and last month.

Other conversions or refundings include: $513.5 million of auction-rate and variable-rate demand bonds issued on behalf of the state for mental health-related economic development or educational health projects; $125 million of insured variable-rate demand bonds issued as New York State personal income tax bonds; $29.5 million of variable-rate demand bonds issued on behalf of Barnard College; $20 million of XL-insured ARS issued on behalf of Brooklyn Law School; $105 million of ARS issued on behalf of Fordham University; $58 million of bonds issued on behalf of Upstate Community Colleges; and St. John's University plans to convert or refund $200 million of ARS into fixed- or variable-rate bonds. DASNY also increased a $450 million refunding issued on behalf of Memorial Sloan-Kettering Cancer Center that was approved last month to $475 million.

Along with other conversions already announced, these conversions will take all but two of the 11 nonprofits with outstanding DASNY-issued ARS out of the auction-rate market.

DASNY also approved a new reduced fee structure, effective April 1, that will base the annual administrative fee on the declining value of a borrower's outstanding principal rather than a flat fee. The board also gave final approval to $637 million of new-money financings and initial approval to $160 million of new money.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER