The Dormitory Authority of the State of New York yesterday approved the conversion or refunding of up to $1.55 billion of auction-rate securities for various issuers that, in some cases, could involve the canceling of existing bond insurance policies.

DASNY also gave final approval to $1.09 billion of new tax-exempt bonds and preliminary approval to $111.5 million more of new tax-exempt bonds.

Rating downgrades for several bond insurers have adversely affected the marketability of some bonds, DASNY documents state.

DASNY approved the remarketing and refunding of $715.8 million of ARS issued on behalf of the New York City Health and Hospitals Corp. as fixed-rate bonds. The authority expects to remarket one series - issued in 2001 at a par value of $420.9 million with MBIA Insurance Corp. - as fixed-rate after terminating the insurance policy. A series issued in 1998 amounting to a par value of $295 million with Financial Security Assurance Inc. insurance will be advance refunded. FSA has not experienced any rating downgrades.

Morgan Stanley and Lehman Brothers will lead manage the advanced refunding.

Orrick, Herrington & Suttcliffe LLP is bond counsel.

The authority also approved the conversion of $482.7 million of ARS sold in 2003 under the state Mental Health Services Facilities Improvement Program for mental hygiene projects. In March, DASNY approved the refunding of those bonds, but according to documents released yesterday, "The authority now expects to convert the existing bonds to a mode allowable under existing documents and to terminate the bond insurance policies and-or refund the existing bonds." The ARS were insured by MBIA, XL Capital Assurance, and Ambac Assurance Corp.

DASNY did not respond by press time to questions about how the insurance would be terminated. Hawkins Delafield & Wood LLP is bond counsel.

DASNY gave the green light for St. John's University in Queens to convert its $186.6 million of ARS to variable-rate bonds rather than refund them, as had been approved at a March DASNY board meeting. Since then, Ambac and MBIA, which insured the ARS, have said that they would allow a direct-pay letter of credit to be inserted in front of the policies while leaving bond insurance intact. JPMorgan Chase and Bank of America are expected to provide the letters of credit.

Nixon Peabody LLP is bond counsel.

DASNY also approved the conversion of ARS issued on behalf of the University of Rochester in 2003 to variable-rate demand bonds. The $164.4 million of outstanding bonds would be converted to the new mode, rather than be refunded. The university is seeking direct-pay letters of credit that will either replace or augment existing MBIA bond insurance.

The largest new-money approval yesterday, up to $690 million, was on behalf of New York University.

The proceeds will be used for the $311 million acquisition and renovation of a residential facility and the $207.9 million acquisition and renovation of an office building. Additionally, the proceeds will repay a line of credit that the university used to redeem $98.5 million of ARS and pay for $10.9 million of various campus renovations and improvements.

Morgan Stanley will lead manage the sale of bonds that will have maturities of up to 40 years. Nixon Peabody is bond counsel. The university is in discussions with Berkshire Hathaway Assurance Corp. for bond insurance but the bonds could be issued uninsured.

The authority also gave final approval to up to $125 million of bonds on behalf of Fordham University.

St. Lawrence University received preliminary approval for up to $52 million of bonds that will refund bonds issued by the St. Lawrence County Industrial Development Agency as well as $10 million of new money.

Other preliminary bond approvals included $38.5 million for the Bronx Lebanon Hospital and $21 million for the Smithtown Special Library District in Long Island.


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