WASHINGTON - District of Columbia finance officials are monitoring about $330 million of the city's variable-rate demand obligations and auction-rate securities insured by Financial Security Assurance Inc. after Moody's Investors Service a week ago put the ratings of the triple-A bond insurer on review for a possible downgrade.
The district is also monitoring about $248 million of its VRDOs that have letters of credit from Bank of America NA after Fitch Ratings downgraded the bank's long-term senior debt to AA-minus from AA last week, along with a large list of municipal bonds that are backed by letters of credit from the bank.
But district Treasurer Lasana Mack said the city is comfortable with the interest rates they are getting with the bonds and they have no plans to get out of the Bank of America LOC or FSA-insured debt "unless something were to occur where having them on the bonds was causing the rates to really spike."
"We're not seeing that at this point," Mack said.
"We've not seen any material difference in the interest rates on the bonds backed by Bank of America," said Raj Srinath, associate treasurer. He said the interest rates were "pretty much in the same ballpark in relation to [the Securities Industry and Financial Markets Association index] as the prior weeks."
Mack said the Bank of America LOC-backed VRDOs were trading 10 basis points over the SIFMA index, or 2.45%.
The district also has about $278.4 million of VRDOs and about $50 million of auction-rate securities with insurance from FSA, which has so far has managed to keep its triple-A ratings in the aftermath of the subprime mortgage crisis. But early last week, FSA along with Assured Guaranty Corp. were put on watch for a possible downgrade from Moody's.
Mack said he is taking a wait-and-see approach to gauge whether a conversion will be necessary in the future. The FSA-insured auction-rate securities have been trading about 35 basis points over the SIFMA index, at 2.70%, according to Mack.
He added that the rates were still low enough to keep district officials content with the LOC and the insurer.
"Again, as long as we're getting good rates, even if they're trading a little more off the index, they're still low rates," Mack said.
However, district officials are planning to restructure about $125 million of MBIA Insurance Corp.-insured Series 2002D VRDOs in mid-September, Mack said. The district will drop the MBIA insurance and obtain a letter of credit, but he would not specify which banks he was working.
"With the news with all bond insurers, as well as with respect with some of the banks, we're moving somewhat cautiously now," Srinath said.
The district, like many issuers across the country, were hit with soaring interest rates on their ARS and VRDOs after the triple-A bond insurers that backed the debt lost their gilt-edged status earlier this year.
District officials in late-May converted $524.7 million of ARS that were insured by various downgraded insurers to VRDOs backed by LOCs. Of the total converted, about $125.8 million of the Series 2008B VRDOs are backed by an LOC from Bank of America.
The district also converted around the same time about $24.3 million of Financial Guaranty Insurance Co.-insured Series 2006B-2 ballpark revenue bonds to VRDOs backed by a LOC from Bank of America.
Earlier in May, the district refunded $252.5 of VRDOs that had been insured by FGIC. The district secured LOCs for the refunding bonds from JPMorgan and Dexia Credit Local and dropped the insurance.