Georgetown University to Convert $550M of ARS in Coming Weeks

WASHINGTON - Georgetown University, one of the first issuers to be hit by a failed auction as the auction-rate securities market was beginning to collapse earlier this year, is joining the throngs of issuers exiting the devastated market when it begins to convert about $550 million of its ARS in the coming weeks.

After months of high interest rates, the university, using the District of Columbia as a conduit issuer, will begin to convert $551.4 million of ARS into fixed-rate and variable-rate debt, starting with a conversion of $214.7 million to fixed-rate debt on Sept. 23. The university plans to complete the conversions by the end of October.

Having carefully planned its exit from the ARS market since the first signs of trouble earlier this year, the university's conversion will come on the heels of an upgrade from Standard & Poor's to A-minus from BBB-plus.

"I think we had a complicated structure to start with," said David Rubenstein, associate vice president of financial planning and analysis for the university, adding that finance officials did not want to convert Georgetown's multiple series of ARS "one at a time."

"We needed a plan that dealt with everything," he said.

Of the university's $551.4 million of ARS, $436.1 million is insured by MBIA Insurance Corp. and $155.3 million is insured by Ambac Assurance Corp., both of which have been downgraded.

The converted bonds will not be insured, Rubenstein said.

The district will convert to fixed rate $67.5 million of the university's Series 2001B ARS on Sept. 23, $73.6 million of Series 2001C on Sept. 25, and $73.65 million on Sept. 29.

After that, an additional $129 million of Series 1999A ARS will also be converted to fixed rate. In addition, about $115 million of the Series 2007B and Series 2007C ARS will be converted to weekly variable-rate demand bonds, which will have letters of credit from Allied Irish Bank PLC and JPMorgan Chase Bank NA, Rubenstein said. Those conversion dates have yet to be scheduled.

In addition, officials plan to refund $100 million of its existing taxable ARS, with about $64 million to be converted to variable-rate demand bonds and the remainder to fixed rate, according to the preliminary official statement.

"We plan on moving right through it, week by week, and have it done by the end of October," Rubenstein said.

While Georgetown's failed auction in late January offered a glimpse of what was to come for the auction-rate market, the university was not hit as hard as some issuers that saw their rates spike to their maximum legal peaks, some as high as 20%.

Rubenstein said the university's rates peaked at more than 6%. Those higher rates cost the university $6 million above what it had budgeted from December of last year until June 30, according to the POS.

Public Financial Management Inc. is financial adviser for the conversions in September. Squire, Sanders & Dempsey LLP is bond counsel. Morgan Stanley is the remarketing agent.

Rubenstein said the university will also work with Goldman, Sachs & Co. and PNC Capital Markets LLC for the future transactions.

Georgetown's credit rating was upgraded by Standard & Poor's because of the university's "impressive demand trends, an experienced management team with a solid financial plan, and substantial gains in fundraising," including a just-completed $1 billion capital campaign.

Moody's Investors Service is expected to rate the conversion A3. Fitch Ratings does not rate the university.

The rating's stable outlook reflects the expectation that Georgetown will maintain current demand trends and will be successful in improving financial operations through its financial plan, according to Standard & Poor's. The university has been successful, demonstrated by its better-than-budgeted performance over the past four years.

Standard & Poor's also expects that higher levels of fundraising, highlighted by a large comprehensive campaign, will begin to increase financial resources and could have a positive effect on the rating.

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