CHICAGO - The Indiana Finance Authority expects to begin converting $611 million of outstanding auction-rate securities into variable-rate demand bonds starting Friday in a series of daily remarketings that will continue through April 3.

The move - coming a week after the authority refinanced another $178 million of auction-rate debt into fixed-rate mode - will refinance all but a small piece of the IFA's remaining ARS.

The $611 million in lease appropriation bonds, issued to finance the state's new Indianapolis Colts stadium, are currently auctioned daily. Beginning Friday, the IFA will convert the bonds into variable-rate demand bonds in eight separate series.

The authority decided on variable-rate demand bonds in part because it has a forward-starting swap starting in August with JPMorgan Chase & Co. and Goldman, Sachs & Co., according to IFA director Jennifer Alvey.

The state's decision to convert the bonds has already had a positive impact on the debt, Alvey said, adding: "when we gave notice of our conversion, the rates [in recent auctions] came down.".

Fitch Ratings assigned a short-term rating of F1-plus to the new bonds and affirmed its long-term AA rating on the outstanding debt.

JPMorgan is the senior underwriter on the transaction, with Morgan Stanleyand Goldman Sachs serving as co-managers. Barnes & Thornburg LLP is acting as the authority's bond counsel, and financial advisers include Lamont Financial Services Corp. and Swap Financial Group.

"The good thing here is the state is dealing with this issue as quickly as possible," said Lamont's Robert Lamb. "They're not the first, obviously, but they're out there very early and that's good from a management point of view."

Financial Guaranty Insurance Co. insured the original bonds, sold in 2005 and in 2007. Instead of insurance, the variable-rate demand bonds will include a standby bond purchase agreement with a group of four banks: JPMorgan Chase, Dexia Credit Local, Bank of New York, and RBS Citizens.

"Bank capacity is somewhat limited right now, so we needed to put together a group of banks for sufficient capacity," Lamb said. The standby bond purchase agreement is set to expire March 25, 2011.

The conversion comes a week after the authority went to market with roughly $178 million in outstanding auction-rate debt that it refinanced into fixed-rate lease revenue bonds that included a mix of taxable and tax-exempt debt.

After April 3 - if Indiana state converts all its stadium debt as expected - the IFA will have remaining about $70 million in State Office Building Commission bonds in the auction-rate mode. The authority is considering whether to refinance that debt as well, Alvey said. The agency carries a total of approximately $3 billion in outstanding debt.

"Indiana is taking steps to address the problems that the current market created for its ARS, and that shows that they're very much on top of the problem," Fitch analyst Douglas Offerman said. "It's very much reflective of the state's conservative approach to financing."

Offerman added that the Lucas Oil Stadium project remains as solid as when the state began borrowing for it. The 63,000-seat stadium being built for the Indianapolis Colts is scheduled to open Aug. 15. The IFA plans to issue one last financing for the project, though details are not yet final.

The bonds are secured by biennial state lease appropriation of rental payments that are due when the stadium is completed. State officials have said they expect tax revenues to be sufficient to pay debt service.

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