Like many issuers dealing with the deterioration of the bond insurance industry, the Erie County, N.Y., Water Authority found itself with a big headache in late February. Although it didn't have auction-rate debt, it did have two series of Ambac Assurance Corp. insured variable-rate demand bonds that investors suddenly didn't want.

"We believe they were put back because of concerns about Ambac," ECWA executive director Robert Mendez said.

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